This is one of the best benefits of a workplace pension. Your pension pot isn’t just built up with money from yourself and your employer – the government helps too. You get tax relief on the earnings you put into your pension pot – so the tax you’d normally pay goes into your pension savings instead.
The standard limit is £40,000, but your exact annual allowance will depend on how much you earn. For example, if you earn £30,000, you could pay in £24,000 and get £6,000 in tax relief. Most people probably won’t pay 80% of their earnings into their pension pot though!
The limit also depends on whether you’ve taken any money out of your pension savings already.
- Net pay arrangement takes your pension contributions from your pay before your wages are taxed.
- Relief at source takes your pension contributions after they’re taxed.