Tax relief

The government wants us to save for retirement and incentivises us by offering tax relief on pension contributions. This gives your pension investments an instant boost.

This information may still be useful in a range of circumstances: For example,

• if you built up a civilian pension before joining, or continue to pay into a personal pension,
• if you’re a reservist or veteran in civilian employment,
• are self-employed,
• or are a spouse or partner who contributes to a pension.

If you are serving as a regular or reservist, you are automatically enrolled into the Armed Forces Pension Scheme (AFPS), and you do not pay monthly pension contributions from your salary. This means regulars or reservists do not receive pension tax relief through AFPS.

However, if you purchase Added Pension through a lump sum, you may be able to reclaim income tax relief from HMRC, depending on your circumstances. You can learn more about Added Pension in our video on the Armed Forces Pension Scheme.

As a basic-rate taxpayer, every £80 you pay in becomes £100 in your pension pot. That’s a 20% boost. Higher and additional rate taxpayers can claim extra relief beyond this initial 20% by completing a self-assessment form.

You’ll either get the tax relief automatically, or you’ll have to claim it yourself. It depends on the type of pension scheme you’re in, and the rate of income tax that you pay. You can get tax relief on pension contributions worth up to 100% of your annual earnings or £60,000, whichever is lower.

There are two kinds of pension schemes where tax relief is paid automatically. One is called ‘net pay’ where your employer takes workplace pension contributions out of your pay before deducting income tax.

The other is ‘relief at source’, where your pension provider claims tax relief from the government at the basic 20% and adds it to your pension pot. You can get relief at source in all personal pensions, and some workplace pensions.

It will not be automatic if you pay income tax at a rate above 20%, and your pension provider claims the first 20% for you through relief at source. In this case, you’ll need to claim tax relief on pension contributions yourself.

Lots of people miss out on claiming higher rate tax relief because they don’t realise this is not automated through relief at source schemes. If you are unsure whether you need to claim tax relief for your pension, you should ask your employer how your pension benefits from tax relief – is it net pay or relief at source?

You can claim this additional tax relief through your self-assessment tax return or on the HMRC website with a dedicated form – just search ‘claim tax relief on your private pension payments’. Tax relief is one of the biggest advantages of saving into a pension, it’s like getting an instant boost from the government every time you contribute.

Whether it’s added automatically or something you need to claim, it means more money going into your pot for the future. The important thing is to make the most of it by contributing what you can, so you’re not missing out on free money that can grow over time and help build a more secure retirement.