Pension Contributions
What are pension contributions?
Pension contributions are payments into your pension. They can come from you, your employer, or both. The government tops them up with tax relief, making pensions one of the most tax-efficient ways to save.
How does tax relief work on contributions?
When you contribute to a pension, the government adds back the tax you paid on that money:
- Basic rate taxpayer – put in £80, get £100 in your pension (£20 added)
- Higher rate taxpayer – claim another £20 back through your tax return (£100 costs you £60)
- Additional rate taxpayer – claim £25 back (£100 costs you £55)
What about employer contributions?
Employer contributions go straight in without using your tax relief. They’re also tax-free for you—not treated as income. This is why employer contributions are so valuable.
Is there a limit?
Yes. The annual allowance is £60,000 per year (or 100% of your earnings, whichever is lower). Contributions above this don’t get tax relief and may trigger a tax charge.
You might be able to use unused allowance from the previous three tax years—this is called “carry forward.”
Key points
- Government adds tax relief – 20%, 40%, or 45% depending on your rate
- Employer contributions are extra valuable – no tax, no limit from your allowance
- Annual allowance is £60,000 – or 100% of earnings if lower
- Can carry forward unused allowance – from past 3 years