The pension annual allowance is the most you can pay into all of your private pensions in a single tax year, and still receive tax relief.

Tax relief is automatic if your employer takes workplace pension contributions out of your wages, before deducting Income Tax. Also, it's automatic if your rate of Income Tax is 20%.

Read more about this and 'relief at source' on gov.uk.

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Private pensions are a great way to top up your state pension in the future.

 

 

 

Pension schemes e.g.:  

• personal pension/stakeholders pensions/'money purchase' (usually arranged by you, the employee);

• workplace pensions (usually arranged by your employer);

• overseas pensions (check with your provider if it qualifies as an overseas pension scheme).

 

Please note that this allowance covers all of your combined private pensions – e.g. if you have a personal pension AND a workplace pension, you would split the allowance between those pensions. If you have more pension pots, the same rule applies.

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There are limits to your tax-free contributions. It's worth exploring this topic further.

 

You usually pay tax if the savings in your pension pots go above:

• 100% of your earnings in a year - this is the limit on tax relief you get

• £40,000 a year - check your ‘pension annual allowance’ on gov.uk (Good news! The annual allowance is rising to £60,000 on 6th of April 2023);

• £1,073,100 in your lifetime -  you usually pay a tax charge if the total value is more than this amount. Your provider will take off the charge before you get your payment.
   

You also pay tax if your pension provider;

• is not registered for tax relief with HMRC;

• does not invest your pension pot according to the rules of HMRC.

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These are worthy points to note.