When you save towards your pension, the government gives you a small bonus towards your savings. This is called pension tax relief.

When you earn pension tax relief, some of the money that you would have used to pay tax on your earnings instead goes towards your overall pension value rather than to the government. 

The amount of tax relief that is paid towards your pension contributions depends on how much income tax you pay. For example:

  • As a basic-rate taxpayer you would get 20% pension tax relief 
  • If you are a higher-rate taxpayer you can claim 40% pension tax relief
  • Additional-rate taxpayers can claim 45% pension tax relief

How do I claim pension tax relief?

Pension tax relief is claimed based on the type of pension you are saving into. You may need to do some work to get the full pension tax relief you’re entitled to depending on how your pensions scheme operates. There are two main ways to claim pension tax relief:

  • Pension Tax Relief from ‘net pay’ or ‘overall salary’ – This type of pension agreement is common among some workplace pensions, and it doesn’t usually require you to do any more work to get the full tax relief you’re entitled to. With this method, all of your pension contributions are taken from your wages before you pay income tax on them, and later your pension scheme will automatically claim back tax relief at your highest rate of income tax.
  • Pension Tax Relief at source – ‘Relief at source pension tax relief’ applies to personal or private pension schemes and even some workplace pensions too. If you’re paying into a workplace pension, your employer will take 80% of your pension contribution from your wages. Your pension scheme will then send a request to HMRC, which then pays an additional 20% tax relief into your pension.