Tax relief: the government top-up

Lesson 6 of 13 in our free Pensions guide: a 5-minute money game with the key points below.

This lesson is in the full version.

Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Pensions is free for everyone.

Questions you'll answer

Basic-rate taxpayer: Mo pays £40 a month from his take-home pay into a pension with tax relief added. How much lands in his pot each month?

Higher-rate taxpayers pay 40% income tax. What happens with their pension tax relief?

Fact: “The 5% employee minimum in auto-enrolment includes tax relief.” — So about 4% comes from your pay and 1% is tax relief.
Fact: “Scottish taxpayers have different income tax bands, which can affect pension relief.” — Scotland has rates like 19%, 21% and 42%. Relief can differ — check if it applies to you.
Myth: “Tax relief means you never pay tax on pension money.” — Usually 25% can be taken tax-free; the rest is generally taxed as income when you take it out.