Pension and tax relief: What you need to know

Tax relief is one of the many reasons why you should invest on any pension scheme.

17:00 21 January 2013

Tax relief is one of government’s ways to encourage more people to start building their pension fund. Tax relief simply means you get tax back on the money you put into your retirement fund. Gains from your investments are largely tax-free.

You get tax relief on all your contributions if you’re under 75 years old. But keep in mind that this is subjected to an annual allowance. The tax back usually goes straight into your pension pot.

How much is it?

If your employer put money into your pension or if you do it all by yourself, the government automatically provides an amount of tax back which is an additional deposit into your pension pot. This percentage increases if you’re a higher rate taxpayer.

Limits

There are basically two limits when it comes to tax relief. First, you get tax relief on contributions up to your annual earnings. There’s also a limit for high earners, who only get tax relief up to their current annual allowance.