Answered by Neil Adams
Yes, you do, which is one of the reasons why pensions are so worthwhile.
If you’re a basic rate taxpayer, you’ll get 20p tax relief for every pound you make in pension contributions. If you’re a higher rate taxpayer you’ll get 40p in tax relief for every pound you pay. This increases to 45p if you pay tax at the 45% additional rate (accurate as of April 2017).
To work out how much tax relief you’ll get on your pension, use our Pension Tax Relief Calculator here →
Pension Annual Allowance
There is an annual allowance of the lower of 100% of your earnings or £40,000 in 2017/18, which is maximum amount than can be contributed into all your pensions in a tax year. If you or your employer makes contributions over this amount there will be a tax charge at your marginal rate.
However, from April 2016, if your income is over £150,000 – including employee pension contributions, bonuses, interest from savings and dividends – then your annual allowance is reduced, or ‘tapered’, by £1 for every £2 you earn over £150,000, up to a maximum reduction of £30,000.
This means that, if you earn £210,000 or more per year (so your income exceeds £150,000 by at least £60,000 pa), then your annual £40,000 allowance is cut by £30,000 (half of the £60,000 excess) to £10,000.
For a less extreme example, if you earn £10,000 above the £150,000 limit, then your annual allowance is cut by £5,000 (£10,000 x 50%), from £40,000 per year to £35,000 per year.
Click here to use our Pension Annual Allowance Calculator →
There is also a lifetime pension allowance, which stands at £1m from the 2016/17 tax year onwards. This is the maximum total benefit that can be drawn from a pension before there is an extra tax charge, although some people may have been able to protect their lifetime allowance depending on their circumstances.
Frequently Asked Pensions Advice Questions
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Jake Mills is the guy to go to. He listens to your needs and will stay in touch. He is a really good adviser and will find you the best policy for your needs. Always ask for Jake.