Pension tax relief

Are you worried about your pension fund? Retirement is a daunting prospect, and saving for the future should always be a top priority. Today, SimpleTax  will explain the basics about pension tax relief; how does it work…

5 Minute Read

Last Updated: 5th March 2024

Are you worried about your pension fund? Retirement is a daunting prospect, and saving for the future should always be a top priority. Today, SimpleTax  will explain the basics about pension tax relief; how does it work and what are the limits?

Today, the Government actively encourages you to save money for your retirement, by offering a tax relief on all pension contributions. Basically, contributing to your pension fund will result in two things:

  • Your pension fund increases
  • Your tax bill decreases

It’s a win-win situation, to a point…

How does it work?

How you receive tax relief is dependent on the type of pension scheme you pay contributions to:

Occupational or public service pension scheme – This is, by far, the easiest way to contribute to your pension fund. Usually, your employer will take pension contributions from your pay packet before any tax is deducted, and you can sit back and watch your pension fund grow.

Personal pension – With personal pensions, you pay tax on your earnings before you make a contribution, but your pension provider then claims back from the Government at the basic rate of 20%. For example, this means that for every £80 you pay into your pension, you will end up with £100 in your pension fund. If you’re on the higher rate, you can claim the difference through your tax return or by contacting HMRC.

If you’re an exceptional case and you don’t pay tax, you can still contribute to a pension scheme and you can still benefit from a 20% tax relief on the first £2,880. This means that the Government will contribute 20%, making it £3,600 in total!

Limits on pension tax relief

There is no limit to the amount of money you can put into any number of different pension schemes, and you will benefit from tax relief on these contributions. However, your tax relief is subject to an annual allowance. Basically, this means that your relief is capped at a number, and the moment your savings go above this number, then you must pay tax on it.

Annual allowance

So, you can save as much as you like towards your pension fund, but the moment your savings go above your annual allowance, you stop receiving tax relief (the maximum amount you can save whilst still benefiting from tax relief is called your annual allowance). If you are saving in a registered pension scheme then your annual allowance for tax year 2012/2013 is £50,000. If you save more money than this, you may have to pay a tax charge on the excess.

Paying contributions to your pension can both reduce your tax bill and set you up for the future. This is just one of many tax reliefs that we at SimpleTax want you to benefit from. Now, everyone can manage their money like an expert; Go SimpleTax

View our Guide to Self Assessment Tax Returns

Our How the wrong tax code could affect your pension article may be of interest

Trusted by over 20,000 subscribers

You don't need to be an expert to complete your self assessment tax return.

Find Out More

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

5 Excellent Reasons to Choose Us

Discover how to make tax returns a doddle...

Find out more

Everything you need to know about payments on account

31 Mar 2024

The video explains payments on account for self-assessment in the UK, showing a live example on a tax return, discussing when and how they’re…

Implementation of Making Tax Digital

31 Mar 2024

The video explains the upcoming basis period reform, which will impact how businesses and the self-employed in the UK calculate their tax bill, aligning…

Changes to side hustles and how it impacts tax reporting

31 Mar 2024

HMRC is tightening its oversight by asking popular side hustle platforms such as Upwork, Fiverr, Airbnb, Etsy, and Uber to report taxpayer earnings directly…

How GoSimpleTax Works


Simply register for free with your full name and email address.

Select Your Income

Select the income you receive and follow the hints and tips for potential tax savings.

Validate Your Information

Validate your personal information and submit directly to HMRC to get confirmation in just seconds.


Work Anywhere, With Any Device

Gone are the days of fretting over a calculator surrounded by scraps of paper at the eleventh hour.

GoSimpleTax’s tax return software uses the information you upload in real time to calculate your income and expenditure, working out the tax you owe and sending you helpful notifications when there’s the possibility of a mistake.

Start your free trial

"The software is intuitive and proved very easy to navigate. I found the whole process refreshingly simple. I saved a lot of money too!"

Steve J.

Ordained Presbyter

"Easy to use and value for money. Everything you need to do your tax."

Gordon J.

Self Employed

"It fills in all the forms and sends them to the Inland Revenue. Not expensive either. Takes the stress out of doing your tax return online."

Ross G.

Team Rector

5 reasons to use GoSimpleTax >