Pensions: At a glance

What is a pension? Pensions are a 'tax-advantaged' method of saving funds for your retirement. What are the contribution limits, allowances and rules?

Subscribers, see Pensions: Tax rules and planning for your detailed version of this guide. 

This is a freeview 'At a glance' guide to pensions. 

Why pay into a pension?

• Contributions made to a UK-registered pension fund are not subject to tax.
• Any income and capital grow tax-free within a registered pension scheme and your personal contributions to your scheme also attract tax relief.
• Pension saving is encouraged: the government will give you tax relief in different ways, depending on whether you or your employer are making the contribution.
• Pension income is taxable income, although some can be tax-free.

Personal pensions

You may pay tax-relieved contributions into your own pension scheme up to the level of your Relevant earnings in the tax year.

• If you only have income from self-employment or employment, this will count as your relevant earnings.
• If you have no relevant earnings in a tax year you can pay up to £3,600 tax-relieved per year into your scheme.

Pension savings are subject to both annual and lifetime allowances.

*Lower in certain circumstances

• Contributions in excess of the annual allowance result in an Income Tax charge at the marginal rate. In some cases, unused annual allowances from earlier years can be brought forward.
• Benefits taken in excess of the lifetime allowance result in a charge of 25% if benefits are taken as income (or 55% if a lump sum).

See Pensions: Tax charge for excess contributions

** The lifetime allowance charge is abolished from 6 April 2023. The lifetime allowance is abolished from April 2024; for most taxpayers it is effectively nil from April 2023 due to the charge being abolished. 

Employer contributions

• Your employer can make any level of contribution to your pension scheme, subject to the contribution limits and any unused contribution limits brought forward.
• Employer contributions are subject to the basic tax rules in terms of Corporation Tax deduction: 'wholly and exclusively'. For PAYE there is no taxable benefit charge or NICs.
• Prior to April 2013, employers could pay pension contributions directly on behalf of the employee's family into their own schemes with no tax or NIC liability. This relief was withdrawn from April 2013.

See Employer pension contributions.

See Pensions contributions: Personal or company?

Pensions auto-enrolment

• Under pension auto-enrolment, employees who earn above a minimum earnings threshold are automatically enrolled into their employer's pension scheme.
• You may opt out of auto-enrolment, however this is not recommended.
• Under auto-enrolment, the employee and employer contribute a fixed rate of cash into the scheme each week or month, depending on when the payroll is run.

See Auto-enrolment earnings thresholds

Planning and pitfalls

Pensions contributions: Personal or company?
There may well be tax savings and so it might be tax-efficient to pay pension contributions via your own or any employer company.

Pitfalls:

• Contributions into unregistered and non-UK pension funds are subject to special rules that we do not cover on this site.
• If you withdraw funds from a pension scheme early or in excess of your limits you will be subject to extra tax charges.
• If a pension fund makes investments into unauthorised investments e.g. into residential property, extra tax charges apply.

See Pensions: Unauthorised payment charges

Useful guides on this topic

Pensions: Tax rules and planning
What tax rules apply to pensions? What tax relief is available? What tax charges can arise? What planning opportunities are there? 

Employer pension contributions
Is there a taxable employment benefit if an employer makes contributions to an employee's pension scheme? What are the rules for employer pension contributions?

Pensions: Unauthorised payment charges
What is a pension unauthorised payment? When does a tax charge arise? Who pays the charge? 

Auto-enrolment: Workplace pensions
This guide looks at the key features of auto-enrolment, who is affected, what employers need to do, and the relevant timescales.

DIY Small Self-Administered Scheme (SSAS)
A Small Self-Administered Scheme (SSAS) is similar to a Self-Invested Personal Pension (SIPP) scheme but does not require third-party providers and can be run solely by member trustees. We examine the details.

Pensions: Tax charge for excess contributions
When does a tax charge arise for excess contributions? What are taxpayers' responsibilities under Self Assessment? 

Pensions contributions: Personal or company?
Is it more tax efficient to pay pension contributions personally or via your own company?

Pensions: What happens when you die?
What happens to your pension when you die? What tax is due by your estate? Will your family have to pay Income Tax if they receive your pension going forward? What can you do to mitigate any tax charges?