It’s estimated that pension tax relief could cost the government £29.5bn in 2024/25. This is a significant increase to five years earlier.
This hefty figure includes the amount of tax relief that pension savers are set to receive, as well as the amount of income tax saved by them holding investments in a pension.
Despite the enormous impact pension tax relief can have on our pensions, it’s still not very well understood.
Here’s how this tax perk works.
This article isn’t personal advice. If you’re not sure what’s right for you, please ask for advice. Pension and tax rules can change, and benefits depend on your circumstances. Money in a pension is usually accessible from age 55 (rising to 57 in 2028). Investments rise and fall in value, so you could get back less than you put in.
How does pension tax relief work?
As long as you're a UK resident under 75, you can usually pay into a pension as much as you earn, up to £60,000 a year for most people, and get basic-rate tax relief (20%).
Even children and other non-earners can contribute up to £3,600 (you pay up to £2,880, the government adds up to £720 in tax relief).
If you pay higher-rate tax (40%), you can claim up to an additional 20% in tax relief through your tax return. If you pay additional-rate tax (45%), you can claim back up to an extra 25%. Different income tax rates and bands apply for Scottish taxpayers.
So, basic-rate taxpayers can turn £80 into £100 with 20% tax relief.
And if you’re a higher earner, you can claim up to an additional 20% or 25% through your tax return – meaning £100 in your pension could cost as little as £55.
How to claim pension tax relief?
For personal pensions, like the HL Self-Invested Personal Pension (SIPP) and some workplace pensions, the pension provider will automatically claim basic-rate tax relief for you.
If you pay higher rates of tax, you’ll need to complete a self-assessment tax return to claim any higher rates of tax relief.
Remember that the higher rates of relief will generally be given as a refund at the end of the tax year or by reducing your tax bill, and won’t be added to your pension.
To find out how much tax relief you could get, try the HL pension tax relief calculator. All you need to do is confirm your earnings, and how much you’d like to pay into your pension.
Secure up to 45% tax relief before this tax year ends at midnight on 5 April
If you want to secure this year’s pension allowance by adding money to your HL SIPP, you’ve still got time.
The quickest way to add money to your HL SIPP is online.
How to top up your HL SIPP this tax year
Before making any payments, read the SIPP key features, including the contribution checklist. Then the quickest way to add money is online or through the HL app.
Log in to your account through the website or with the HL app.
Select your SIPP and under 'Actions', choose 'Top up online' or in the HL app 'Top up'
Follow the instruction to add a contribution with your debit card.
New to SIPPs?
When you open a SIPP with HL, the UK’s largest direct SIPP provider, you can look forward to pension tax benefits.
You’ll get access to a wide range of investments to pick from, including the HL Ready-Made Pension Plan, and a full range of retirement options.
And as well as getting tax relief, your pension can also grow free from UK income and capital gains tax.
Take advantage of our special offers. See what's available for new and existing HL clients. Terms apply.