Tax relief on pension contributions - what is it and how does it work?
Tax relief means that some money you'd normally pay in tax is paid into your pension. Here's what you need to know
When you pay money into a pension, in most cases you'll get tax relief. That means that the government pays some of the money you would normally pay as tax into your pension. That means if you're a basic rate taxpayer, you'll get an extra £20 for your pension for every £80 you pay in (making £100 in all). Here's how it works:
You can pay up to £40,000 a year into your pension or 100% of your salary - whichever is lower
If you need to save more into your pension, you can go back and 'top up' over the last three years
If you want to save for your retirement by investing your money in a pension, there are limits on how much you can pay in. The limit for the current year (2014-2015) is £40,000 or 100% of your salary, whichever is lower. There are also limits on how much you can invest over your lifetime. If you don't have any earnings at all, you can still have a pension and pay into it.
Early pension liberation or unlocking - what are the risks?
If you want to cash in your pension early (before you're 55), be aware that you could lose all of it.
Recently I’ve been getting a number of emails from women who want to know if they can cash in their pension to pay bills or to pay off a mortgage. Under the rules, the earliest you access your pension is the age of 55. But the Financial Services Authority, the Pensions Regulator and HM Revenue and Customs are warning about companies that say they can help you access part of your pension before you’re 55. They say some may be scams and others are likely to be illegal.