A simple guide to pension tax relief

7 Jan 2024

Grow Your Pension Faster with Tax Relief

One of the most appealing aspects of putting money into a pension is the benefit of tax relief. Think of it as a little bonus to your retirement savings. For every 80p you put into your pension, the government adds an extra 20p as tax relief, provided you qualify. This means that your pension savings could grow faster than you might have planned!

How Does Pension Tax Relief Work?

Simply put, the government's tax relief is at a basic rate of 20%. Usually, this portion of your income would be taxed, but with pensions, instead of going to the government, it goes straight into your pension pot where it can grow over time. The more you contribute, the more tax relief you can receive, enhancing your future savings.

Is There Anything I Need to Do?

For the majority, there’s no extra effort required. Your pension provider handles the recovery of the tax relief and automatically adds it to your pension pot. If you are a higher or additional rate taxpayer, however, you may claim extra relief through your tax return or directly with HMRC.

When Will I See the Tax Relief in My Account?

It might take a little while because your pension provider needs to claim this relief from HMRC. Generally, expect to see the additional money in your pension account within about three months.

What Contributions Qualify for Tax Relief?

Tax relief is granted on personal contributions, that is, money you add from your salary or as extra top-ups. It’s worth noting that tax relief does not apply to any contributions your employer makes.

Is Tax Relief Different From The 25% Tax-Free Allowance?

Yes, these are two separate perks of having a pension. The 25% tax-free allowance refers to the money you can withdraw tax-free from your pension once you reach the age of 55 (which is set to increase to 57 from 2028). On the other hand, tax relief contributes directly to increasing your savings during your working years.

Understanding Income Tax Rates and Benefits

All eligible taxpayers receive a 20% tax relief on pension contributions. For those on a higher tax bracket, there’s an opportunity to claim additional relief, which can be quite beneficial. Remember, this additional relief is not paid into your pot but directly benefits you.

Summary

Pension tax relief might sound complicated, but it's essentially a helpful boost from the government making your retirement savings grow healthier. With little or no action needed on your part, it’s an effortless way to build a more secure future. Remember, if you have several old workplace pensions, bringing them together with Penny could make managing your pension and understanding benefits like tax relief even simpler.

SOME IMPORTANT THINGS YOU SHOULD KNOW
Pensions are long terms investments. It’s important that you know the value of your investment could go up as well as down. You could get back less than you put in. Past performance is not necessarily a guide to the future and pension investing is not intended to be a short-term option. Penny does not provide financial advice so please be sure that this investment is right for you.

Your current pension might have special benefits that will be lost if you transfer to Penny. These special benefits include: Guaranteed Annuity Rate (GAR), Guaranteed Bonus Rate (GBR), Guaranteed Minimum Pension (GMP) and Protected Tax Free Cash (PFTC) over 25%. If this is the case, we will not transfer your pension, as you may be better off not transferring in these cases.

Your current provider might charge you a transfer-fee to transfer your pension to Penny. If this is the case, we will not transfer your pension, as you may be better off not transferring in these cases.

You should consider the charges and benefits before transferring your old pensions to your new plan, and consider whether the risk and reward profile of the investments offered matches your needs. It may be that your current provider has lower fees than Penny - where this is the case, we recommend that you carefully consider whether to transfer your pension to Penny, as you may be better off not transferring in these cases.

If you are in any doubt about proceeding you should contact a financial adviser.
© Copyright 2024 Penny Technology Limited. Company registration: 11999643. FCA Reference Number: 931299.
SOME IMPORTANT THINGS YOU SHOULD KNOW
Pensions are long terms investments. It’s important that you know the value of your investment could go up as well as down. You could get back less than you put in. Past performance is not necessarily a guide to the future and pension investing is not intended to be a short-term option. Penny does not provide financial advice so please be sure that this investment is right for you.

Your current pension might have special benefits that will be lost if you transfer to Penny. These special benefits include: Guaranteed Annuity Rate (GAR), Guaranteed Bonus Rate (GBR), Guaranteed Minimum Pension (GMP) and Protected Tax Free Cash (PFTC) over 25%. If this is the case, we will not transfer your pension, as you may be better off not transferring in these cases.

Your current provider might charge you a transfer-fee to transfer your pension to Penny. If this is the case, we will not transfer your pension, as you may be better off not transferring in these cases.

You should consider the charges and benefits before transferring your old pensions to your new plan, and consider whether the risk and reward profile of the investments offered matches your needs. It may be that your current provider has lower fees than Penny - where this is the case, we recommend that you carefully consider whether to transfer your pension to Penny, as you may be better off not transferring in these cases.

If you are in any doubt about proceeding you should contact a financial adviser.
© Copyright 2024 Penny Technology Limited. Company registration: 11999643. FCA Reference Number: 931299.
SOME IMPORTANT THINGS YOU SHOULD KNOW
Pensions are long terms investments. It’s important that you know the value of your investment could go up as well as down. You could get back less than you put in. Past performance is not necessarily a guide to the future and pension investing is not intended to be a short-term option. Penny does not provide financial advice so please be sure that this investment is right for you.

Your current pension might have special benefits that will be lost if you transfer to Penny. These special benefits include: Guaranteed Annuity Rate (GAR), Guaranteed Bonus Rate (GBR), Guaranteed Minimum Pension (GMP) and Protected Tax Free Cash (PFTC) over 25%. If this is the case, we will not transfer your pension, as you may be better off not transferring in these cases.

Your current provider might charge you a transfer-fee to transfer your pension to Penny. If this is the case, we will not transfer your pension, as you may be better off not transferring in these cases.

You should consider the charges and benefits before transferring your old pensions to your new plan, and consider whether the risk and reward profile of the investments offered matches your needs. It may be that your current provider has lower fees than Penny - where this is the case, we recommend that you carefully consider whether to transfer your pension to Penny, as you may be better off not transferring in these cases.

If you are in any doubt about proceeding you should contact a financial adviser.
© Copyright 2024 Penny Technology Limited. Company registration: 11999643. FCA Reference Number: 931299.