Do I Get Tax Relief On My Personal Pension Contributions?

Yes, you do, which is one of the reasons why pensions are so worthwhile.

If you’re a basic rate taxpayer, you’ll get 20p tax relief for every £1 you make in pension contributions. If you’re a higher rate taxpayer you’ll get 40p in tax relief for every £1 you pay. This increases to 45p if you pay tax at the 45% additional rate.

Pension Annual Allowance

There is an annual allowance of the lower of 100% of your earnings or £60,000, which is maximum amount than can be contributed into all your pensions in a tax year. If you or your employer makes contributions over this amount there will be a tax charge at your marginal rate.

However, from April 2023, if your income is over £260,000 – including employee pension contributions, bonuses, interest from savings and dividends – then your annual allowance is reduced, or ‘tapered’, by £1 for every £2 you earn over £260,000, up to a maximum reduction of £30,000.

This means that, if you earn £210,000 or more per year (so your income exceeds £150,000 by at least £60,000 pa), then your annual £40,000 allowance is cut by £30,000 to £10,000.

For a less extreme example, if you earn £10,000 above the £260,000 limit, then your annual allowance is cut by £5,000 (£10,000 x 50%), from £60,000 per year to £55,000 per year.

Lifetime Allowance

There is also a lifetime pension allowance, which stands at £1,073,100. This is the maximum total benefit that can be drawn from a pension before there is an extra tax charge, although some people may have been able to protect their lifetime allowance depending on their circumstances.