Is it still possible to pay into a private pension if you don’t work anymore? How does it work with tax and any relief?
- Andrew Jenkinson
Yes, you can. Any UK resident (under the age of 75) can make pension contributions and receive tax relief on their payments, even if they are a non-taxpayer.
This can be useful if you want to build up a pension in your own right, for example if your partner is the main breadwinner and you stay at home to look after your children.
Pension for Non-Earners
As a non-earner, you can still receive 20% tax relief even if you don’t pay tax. In this case, the most you can pay into your pension is £3,600, made up of your contributions of £2,880 and the taxman’s contribution of £720.
You can take your pension benefits from the age of 55, with the first 25% available as a tax-free lump sum. The remaining 75% is available as taxable income. If you are a non-taxpayer (and these pension payments do not push you into tax), this payment would not be taxed.
Personal Allowance and Tax Relief
For example, imagine you invest £3,600, which grows to £10,000. When you decide to take your pension benefits, you can take 25%, or £2,500, as a tax-free lump sum. If you want to take the remaining 75% as a single income payment of £7,500, then this amount is not taxed if your total income is less than the personal allowance of £11,500 (for the 2017/18 tax year). Your personal allowance is the amount of income you can receive each year without having to pay tax on it.