If you pay into a personal pension or a group personal pension, the government tops up your pension by adding basic rate tax relief of 20% to all your personal contributions. So, if you contribute £80 a month, £100 will be invested automatically in your plan – that’s an additional £20 at no extra cost to you.
There’s a limit on the amount of personal and third-party contributions that can be made in a tax year that can benefit from tax relief — this is the greater of £3,600 or 100% of your relevant UK earnings and excludes any contributions made by your employer.
There are also certain limits that can affect the amount of tax relief you're entitled to:
- If total contributions made by you, your employer, or a third party exceed the current annual allowance (the total amount that can be paid into your pension(s) each tax year), there may be tax to pay on the excess.
- When you come to take benefits, the tax-free portion (usually up to 25%) will be measured against your Lump Sum Allowance (£268,275) and Lump Sum and Death Benefit Allowance (£1,073,100) and if it exceeds either of those, you may have to pay tax on the excess.
This is a brief summary only, and there are circumstance where limits may be greater or smaller than the standard allowances — for example, if you’re a high earner you may be subject to a tapered annual allowance. Or if you flexibly access your pension benefits, you’ll be subject to the money purchase annual allowance on some of your pension. For more information visit the HMRC website or speak to a financial adviser — there may be a charge for this. If you don't have a financial adviser, you can visit MoneyHelper to find the right one for you.
This information is based on our understanding of current, taxation law and HMRC practice, which may change.