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
Excellent service renewing our medical insurance, professional advice, good rates found and excellent professional after service, highly recommended.
Nadeem was brilliant. He was very patient and worked very well with me to come up with the best solution possible for my budget. Perfect solution. Thank you very much.
Dealt with me promptly and provided me with the most cost-effective option consistent with my requirements. Very pleased and thank you.