How pension tax relief works
Important information: The value of pension savings can go down as well as up, so you may get back less than you invest. The amount of tax you pay and whether you are eligible to invest in a pension will depend on your personal circumstances. All tax rules may change in future. Currently, you cannot normally withdraw money from your pension until you are 55.
Tax relief on your employer’s contributions
Usually, you would have to pay Income Tax on money you receive from your employer. But if the money is going into your pension as an employer pension contribution, no tax or national insurance is deducted from your employer pension contributions. So, you receive full tax relief on any contributions your employer makes to your pension.
- For example, if you earn £2,000 a month and your employer’s contributions to your pension are 5%, the full £100 will go straight into your pension, no matter how much tax you would usually have to pay on it.
Tax relief on your own contributions
You can also receive income tax relief on any money that you pay into your pension yourself, but you may have to claim some or all of it from HM Revenue & Customs (HMRC). The way your tax relief is handled will depend on the type of pension you have, and whether you still work for the company whose plan it is:
- ‘Net pay’ – this is how you receive your tax relief if your plan is part of the Fidelity Master Trust or has its own board of Trustees.
- ‘Relief at source’ – this is the method used if your plan is a Group Personal Pension Plan or a Group Stakeholder Pension.
- 'Salary Sacrifice’ - this method can be used by any type of pension scheme. Members agree to a reduction in salary in exchange for a pension contribution made by their employer. This means you are not taxed on the contribution.
You might be able to work out what kind of arrangement your plan has through your payslip but, if not, check with your HR department.
If you no longer work for the company that runs the plan, you may still be able to make one-off contributions to your pension. In this case, the way you receive tax relief may be different, but it is still important to know whether the plan used ‘net pay’ or ‘relief at source’.
Salary sacrifice is an agreement between you and your employer. If you choose to salary sacrifice, all it means is that you agree to give up part of your salary and your employer agrees to pay this amount into your pension account along with any contributions they make.
The advantage of contributing this way is that reducing your salary cuts down on your National Insurance payments as well as your tax. You don’t have to do anything either, as your salary is adjusted to reflect the amount you are sacrificing. Your employer then pays the whole contribution directly to your Fidelity pension plan.
You can opt out of making contributions this way and pay into your pension account with contributions deducted from your gross pay. Any contributions will be deducted automatically and paid to your Fidelity pension plan alongside your company’s contribution. Tax relief on your contributions is given under what is known as a net pay arrangement method, which means your contributions are deducted from your gross pay before any tax is applied.
Pension tax relief guide
Our guide explains how tax relief works and how much relief you could be entitled to.
Call us
If you’d like to make an additional contribution to your pension, our pension associates will be able to help.
There’s a limit to tax relief
There's a limit on how much you can save into your pensions each tax-year while still benefiting from tax relief on contributions.
Tax treatment depends on individual circumstances and all tax and pension rules may change in the future.