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.
It depends which of the two methods your employer uses for getting tax relief for you:
- Net pay arrangement means your contributions are taken from your pay before your wages are taxed. So, you only pay tax on what’s left – therefore you get your full tax relief straight away.
- Relief at source means your contributions are taken from your pay after your wages are taxed. Then we automatically claim tax relief for you, from HMRC, adding the basic rate of tax of 20% to your pension contributions.
- If you are a non taxpayer and your employer uses the net pay arrangement, then you won’t get any tax relief.
- If you pay more than basic rate tax and your employer uses the relief at source method, you will have to claim the extra tax relief direct from HMRC via your self-assessment tax return.
There is also a limit on how much that can be paid into your pension pot each year and still benefit from tax relief – this limit is called the annual allowance. This limit may be lower for you if you’ve taken any money out of your pension savings already – this lower limit is called the money purchase annual allowance.