Does the Government contribute to private pensions if you don't pay tax?

17 February 2021

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Question by Kahn

I am not a tax payer as I do not work. Will the Government pay any money into my private pension?


Answered by Anna Sofat

Tax Relief

Anyone over the age of 18 can contribute to a pension and obtain at least 20% tax relief. So as a non-taxpayer UK resident, you can invest £2,880 per year into your private pension and the Government will add a further £720.

If you are a higher rate tax payer, then you declare the pension contribution in your tax returns, and you should get further tax relief – HMRC usually adjust your tax code so you pay less tax, or in some cases they'll send you a cheque for the tax relief.

Tax efficiency Pensions are highly tax efficient: Any growth can accumulate tax free, and you can take out 25% as a tax free lump sum anytime after the age of 55. On the balance 75% you pay income tax at your marginal rate of tax. Pensions are also inheritance tax efficient, as the funds in your pension are outside of your estate as long as you have nominated someone to receive the benefits upon your death.

So all in all, pension contributions are something you should give serious thought to, whether you are a tax payer or not!

Regards,

Anna

Answered by

Anna Sofat

Financial Adviser

Anna is a multi-award winning financial planner and has been advising enterprising women and their families for nearly twenty years. She is highly regarded as ‘the Voice of Women’s Wealth’ and is the founder of the ‘Are You In?’ movement, which seeks to transform the financial sector towards diversity, inclusivity and greater democracy.