Tax relief on pension contributions is a government incentive to encourage people to save for their retirement. It is a way to reduce the amount of tax you pay and boost your savings for the future. The amount of tax relief you get depends on how much income tax you pay. There are two types of tax relief paid into workplace pensions: the ‘net pay arrangement’ and ‘relief at source’ .

Here are some key points about tax relief on pension contributions:

• Tax relief is given based on the rate of income tax that you pay.
• You can get tax relief on private pension contributions worth up to 100% of your annual earnings.
• Tax relief is given at your ‘marginal’ (highest) tax rate.
• There are two kinds of pension schemes where you get relief automatically: your employer takes workplace pension contributions out of your pay before deducting Income Tax, or your pension provider claims tax relief from the government at the basic 20% rate and adds it to your pension pot (‘relief at source’) .
• If you pay Income Tax above 20%, your pension provider claims the first 20% for you (relief at source) .
• If you’re in a workplace pension that allows other people to contribute, you may need to claim the tax relief on those contributions.
• If you’re paying in an amount greater than £10,000, you’ll need to contact HMRC to claim the tax relief.
• If your workplace pension uses the net pay method, the full amount of the pension contribution is taken from your pay before tax is deducted. Instead of getting tax relief added to the pension contribution, you get tax relief by having a lower tax bill.
• If you don’t pay tax, you might not get tax relief on your pension contributions.
• The government is proposing that for contributions made in the tax year 2024-25 onwards, there will be a way to claim the tax relief on your contributions.

In summary, tax relief on pension contributions is a way to reduce the amount of tax you pay and boost your savings for the future. The amount of tax relief you get depends on how much income tax you pay, and there are two types of tax relief paid into workplace pensions: the ‘net pay arrangement’ and ‘relief at source’.