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Already taken money from your pension? You could still get a 20% boost

Tax relief doesn’t stop just because you’ve taken money from your pension, or stopped working. You could still get a top up of 20% or more on what you pay in.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

You might think because you’ve accessed your pension, you can’t add more money in. That’s often not the case.

If you’re a UK resident under 75, you can still pay into a pension and receive tax relief. Even if you’ve finished working.

The amount you can pay in depends on if you still have earnings from work and how you’ve accessed your pension.

The deadline to act this tax year is 5 April.

What are the benefits?

  • When you pay money into your pension, the government will automatically add basic rate tax relief (currently 20%)
  • If you pay  income tax at 40% or 45% you can claim back even more through your tax return
  • Usually up to 25% of the money you have in a pension can be paid to you tax free and the rest taxed as income
  • You can pass on your pension to your loved ones (tax free in some cases) when you die. It won’t normally be subject to inheritance tax

Tax rules can change and the value of the benefits will depend on your circumstances. Scottish taxpayers pay different rates of tax so the amount they can claim back is different.

I’m still working, how much can I pay in?

The total amount that can be paid in to your pension, including contributions made by you and your employer and tax relief added by the government, are limited by the annual allowance each tax year. For most people this is £40,000.

Certain rules might mean your allowance is lower or higher which are explained in our annual allowance factsheet.

Usually you’ll get tax relief on whatever you pay in, which can be as much as you earn each tax year (up to your annual allowance).

Taking money out of your pension doesn’t necessarily impact how much you can pay in. For example, if you’ve only taken your tax-free cash or bought an annuity, nothing changes. You just need to be mindful of the tax-free cash recycling rule, which aims to stop people exploiting pension rules to gain excessive tax relief. This can happen when a person’s intention is to significantly increase their pension contributions as a result of taking tax-free cash.

Scenario 1

You’ve taken the tax-free cash from your pension using drawdown but haven’t made any other withdrawals, so your annual allowance is still £40,000. You earn £30,000 this tax year and your employer pays in £10,000 into your pension. To make the most of your allowance, you could pay in £24,000 which the government would top up with an extra £6,000.

If you’ve accessed your pension flexibly, which includes taking a lump sum or taking income from flexible drawdown, then a different limit applies. The Money Purchase Annual Allowance (MPAA) means the amount you can pay into personal (e.g. self-invested) pensions will be reduced to £4,000. Money paid into defined benefit (e.g. final salary) pensions isn’t affected by this rule.

Scenario 2

You’ve taken a lump sum from your pension (25% of it was tax free and the rest was taxed), so you’ve triggered the £4,000 MPAA limit. You earn £30,000 this tax year and you’re self-employed. To make the most of your allowance, you could pay in £3,200 into your personal pension and receive £800 in tax relief from the government.

What if I’m not working, or earn less than £3,600?

You can still pay in up to £3,600 into your pension each tax year, regardless of whether you’ve taken money from your pension. You can keep doing this until you reach 75.

Because of tax relief you’d only need to pay in £2,880, and the government will automatically add £720 to bring the total to £3,600.

That means if you’re 60 now, and start to save the full amount each tax year, you could get £10,800 from the government in tax relief by the time you turn 75.

How to pay into a pension this tax year

It’s simple to add money to an HL Self-Invested Personal Pension (SIPP), which you can easily manage online, over the phone or in writing.

The deadline to add money to a SIPP in the current tax year is midnight on 5 April 2019.

In our HL SIPP you’re free to choose your own investments, pick a ready-made portfolio, or you can pay an adviser to choose investments for you.

You don’t need to pick your investments straight away. Sometimes our clients add money to their SIPP before the tax year deadline, secure their tax relief, and choose their investments in their own time.

Find out more about the HL SIPP

Remember all investments can fall and rise in value. There’s the potential to grow your pension value, but it’s also possible to get back less than you invest. If you’re not sure which investments are right for you, we can put you in touch with one of our financial advisers.

Before you make a pension contribution, please make sure you understand the risks and that you've read the key features (including the contribution checklist and important investment notes) and terms and conditions (including tariff of charges).

If you don’t have an HL SIPP, you can apply online.

How to start a SIPP

If you already have an HL SIPP, you can top up online.

Top up

If your HL SIPP is in drawdown, please call us on 0117 980 9950 to make a contribution.

Help with tax relief

Find out how much tax relief you could receive on your contributions.

Tax relief calculator

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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