Personal Pensions & Tax Relief: A Simple Guide 💸
Pensions can often feel complicated - but they come with some of the best financial perks out there. In fact, the government literally gives you money to help save for retirement. 😲
Whether you're employed or self-employed, understanding personal pensions and SIPPs (Self-Invested Personal Pensions) is a great way to take control of your future - and unlock that sweet, sweet tax relief.
Let's break it down.
Personal vs Workplace Pensions 🤔
Here’s the difference:
Workplace pension - set up by your employer. You and your employer both pay in, and tax relief gets added. Easy.
Personal pension - you set it up yourself. Perfect if you’re self-employed, freelance, or just want more control.
(See more on pension types here)
You can have both at the same time - loads of people do. Workplace pensions get you employer contributions (free money), while personal pensions can offer more flexibility or investment options.
One popular type of personal pension? Let’s talk SIPPs.
What's a SIPP? (Self-Invested Personal Pension) 🛠️
A SIPP is like a 'DIY pension'. You pick where your money is invested - funds, shares, bonds, you name it. More control than a regular personal pension, but your don't need to be a finance pro.
Key things to know:
You (or someone on your behalf) can contribute 💰
You money gets invested and (hopefully) grows over time 📈
You can't touch it until age 55 (57 from 2028) ⏳
Some SIPPs charge fees - check what's included 🧾
SIPPs are great if you're self-employed or want more say in where your money goes. And yes, you can have a SIPP and a workplace pension at the same time.
Tax relief: The government’s gift to you 🎁
Here’s the juicy part: pension tax relief.
When you contribute to a pension, the government gives you back the tax you paid on that money - and adds it to your pension pot. Yeah, seriously! 🤑
If you're a basic-rate taxpayer (20%):
You put in £80
The government adds £20
£100 ends up in your pension → 25% boost instantly
Higher-rate (40%) or additional-rate (45%)?
You still get the basic £20 added automatically
Then you can claim back the extra through your tax return → That £100 pension pot may only cost you £60 or £55 in real terms 🤯
You won’t find that kind of return in a regular savings account!
How much can you contribute? 📊
Tax relief is generous - but there are limits:
Up to £60,000/year or 100% of your income (whichever is lower)
Includes all pensions: workplace + personal
Higher earners might have a lower limit (tapered allowance)
If you’ve started drawing from a pension, a smaller £10k limit might apply
No/low income? You can still pay in up to £2,880/year and get a 20% top-up to make £3,600
Bonus: the lifetime allowance cap is gone as of April 2024. You can build your pension pot as big as you like 🚀
Do I need to tell HMRC? 🧾
Basic-rate taxpayers - Nope. Your provider claims your 20% relief for you.
Higher/additional-rate taxpayers - Yes! You’ll need to file a tax return to get the extra relief you’re owed.
If you’re self-employed, you’re likely doing a return anyway - just pop your pension contributions in the right section and let HMRC do the rest.
Final thoughts 🌱
Pensions, especially personal pensions and SIPPs, are one of the smartest, most tax-efficient ways to grow your savings.
Flexible ✅
Rewarded with tax relief ✅
Set up and managed easily online ✅
Whether you’re just getting started or already saving through work, a SIPP gives you extra control - and the government helps grow your pot along the way.
So, if you're ready to level up your retirement game with a straightforward SIPP, automated saving tools, and cashback rewards that makes saving as easy as spending - then join the waitlist for the Chest app coming later this year! 💪
