Paying into a pension is not just about how much you contribute. Your enrolment letter will help you find out how much you and your employer will contribute, and if those contributions will increase in the future. You will also get tax relief from the government on anything you pay in. All of this means that it's easier than you think to build up your savings.
Your contributions can be deducted in two different ways, these are known as 'relief at source' and 'salary sacrifice'.
Relief at source
Your employer will take regular contributions from your salary after tax and pass them on to us, along with any additional amount that they're paying in for you.
We'll claim basic rate tax relief automatically on your behalf. If you are a higher-rate tax payer you'll need to claim the additional amount through your tax return.
If you don't pay income tax because your earnings are below the income tax threshold, we can still claim basic rate tax relief for you and add it to your pension pot.
Your employer may offer you the option of paying by 'salary sacrifice' (sometimes called salary exchange). You can choose to give up part of your salary in return for an increased pension contribution from your employer. This means that your contribution is taken from your pay before tax, so you benefit from full tax relief straight away, and you save National Insurance too.
If your employer offers salary sacrifice, they will contact you with more information. Use our salary sacrifice calculator to see how you could benefit.
When you're thinking of how much to contribute, you should bear in mind that there is a limited amount you can pay without incurring a tax charge.
Generally, you can pay in the equivalent of your entire annual salary each year (or up to £3,600 if this is more) and get tax relief. However, the government has put in place an annual allowance which includes any money that you pay in and any money that an employer pays in on your behalf, to this plan or any other pension plans you may have. If you exceed the annual allowance you will pay tax on any amount paid above it.
These allowances can change with each new tax year, depending on what the government sets out. Our Tax Year Rates and Allowances booklet will keep you up to date on what these allowances are, and how they could affect you.
The tax allowances are set by the Government each tax year. Find out what they are and how they could affect you.
For higher earners, as well as taking into consideration the Annual Allowance, you also need to be aware of the Lifetime Allowance. Find out further information about both of these limits.