What are the benefits of paying into a pension?
For both workplace and personal pensions, when you pay into your pension you get tax relief on the amount you pay in – think of it as a gift from the government!
The tax relief is set at the highest rate of income tax you pay. If you’re paying the basic rate of tax (20%) in England, you get 20% tax relief. If you want to contribute £100 from your salary it will only cost you £80; the government will add £20 – the tax it would have otherwise taken.
You can find more information on the different limits and exceptions that apply to tax relief here.
Contributions from your employer
As part of auto-enrolment in workplace pensions, you and your employer must make minimum contributions to your pension. These minimum contributions are based on your earnings are currently set at 3% for your employer and 5% for you.
What if I don’t have an employer?
If you’re self-employed and pay into a pension you won’t get employer contributions (because you’re your own boss), but you’ll still get the tax benefits from the government. Your pension provider usually claims the 20% tax benefit and adds this to your pot. If you’re a higher rate tax payer, you can claim back the additional tax relief due to you through your self-assessment tax return.