Tax back on your pensions
Nov 21, 2023
Whenever you’ve saved into your pension, the government has given you money – and you probably didn’t even realise. Here’s how it works…
Your income is taxed (sorry to remind you 🤬).
8% of your income goes into your pension as a contribution. That 8% was initially taxed, but your pension scheme will then claim that tax back.
So, the income tax you’d normally pay on that 8%, goes into your pension, for later on.
What this looks like in real numbers…
Let’s say you earn £30k. Your income tax rate would be 20% (in 20/21).
You’ll save 8% of your salary into your pension, which is £2,400.
Your pension scheme will claim back the 20% income tax on your savings, which would be £600.
So, the total amount saved into your pension that year would be £3000.
Effectively, pension savings are a pretty good way of getting money back from the government into your future self’s pocket 🤤. Makes you think a little differently about saving into your pension, right?