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’.

If you no longer work for the company that operates your plan, it may still be possible for you to make one-off contributions to it. This will depend on what the plan rules say and whether you live in the UK.

Call us on 0800 3 68 68 68, and we will be able to tell you if your plan allows you to make one-off contributions if you have left employment. If it does, we can also take your payment, noting you will need to reclaim any income tax above 20% direct from HMRC.

• If your plan has a net pay arrangement, you will make the full payment and then claim any tax relief you are entitled to from HMRC. They will either send it directly to you or adjust your tax code to reduce the total amount of tax you pay over the year.
• If your plan provides relief at source, you will only need to make 80% of your total pension payment, and we will claim the other 20% from HMRC as tax relief. If you pay tax at a higher rate than this, you may then be able to claim extra tax relief from HMRC.

Remember that whether you benefit from tax relief will depend on what your total income is and how much tax you usually have to pay.

Tax treatment depends on individual circumstances and all tax and pension rules may change in the future.