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Pension tax breaks

Because the government is keen for us to save for retirement, pensions get generous tax breaks. Be sure to make the most of them.

If you’re unsure about the benefits about saving in a pension, tax breaks provide a compelling case to start early.

Generous tax relief gives you a head start

Under current rules, every contribution you make – up to certain limits – gets tax relief. Put simply, the government adds on the tax you’ve paid on that money.

• If you are a basic or lower-rate taxpayer, that means you have to contribute only £80 to get a pension contribution of £100.
• If you pay higher-rate tax, you have to put in only £60 to get a pension contribution of £100. In practice, if you’re a member of a company pension plan, your contribution will probably be taken out of your before-tax salary, so the tax relief is included right away.

There are other tax breaks, too. Your pension fund gets special tax treatment as it grows – and under current legislation you can take up to 25% of your pension as a tax-free lump sum rather than income.

Don’t miss out on these rare tax breaks

This is a unique combination of tax breaks you won’t find anywhere else – so it pays to contribute as much as you can into your pension.

Please note that the level of tax benefits and liabilities will depend on individual circumstances and may change in the future.