If I pay money from my savings into a pension (and not direct from wages). - do I still get tax relief?

Hello

If I pay money from my savings into a pension (and not direct from wages). - do I still get tax relief?

Thanks
Nichola

Hi Nichola,

This is a common query.

Yes you do get tax relief if you pay a pension contribution direct from your savings; this is called relief at source. For every 80p you put into your pension from your bank account, your pension provider receives a further 20p in tax relief which is then added to your pension also. So a 25% uplift on what you investment - thats a pretty good investment return! If you are a higher rate tax payer you can claim further tax relief through your self assessment return.

A couple of things to note:

- Paying direct from your wages can also save National Insurance (NI) if this is paid from your gross salary through salary sacrifice. You don't save any NI when paying pension contributions from your savings. So if you're looking to make further pension contribution on a regular basis it may be best to speak to your payroll department to see if you can increase the amount that comes from your wages - particularly as the new NI levy comes into force shortly.

- There is a limit on how much you can put into your pension each year and receive tax relief on. This is quite a complex topic but in very simple terms, you can get tax relief on gross contributions (i.e. your payment plus the tax relief, so £1 in the initial example) up to the lower of 100% of your UK relevant earnings or £40,000 (which is the Annual Allowance). There a reduction to your individual Annual Allowance if you earn over a certain threshold and there is a mechanism where you can use previous years unused Annual Allowances, but these topics are complicated and you should take financial advice if either are relevant.

I hope this gives you enough information but please do get in touch if you have any further queries.

Best wishes

Laura