Can I still contribute to a pension after retirement?
We look at the reasons why you should consider paying into your pension even if you’ve already taken money out or stopped working.
Last Updated: 6 April 2023
Many people don’t realise that they can continue paying into their pension, even if they’ve given up work or dipped into their retirement savings already. If you thought the same, you could be missing a trick.
Providing you’re a UK resident, under 75, you can still save into your pension and get tax relief. This is an added boost to your pension savings from the government that could mean a more comfortable retirement.
We hope you find the following tips helpful, but remember they’re not financial advice. If you’re not sure what to do, please ask for advice.
What are the benefits of paying into a pension after retirement?
- When you pay money into your personal 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.
- You can access the money when you like from age 55 (57 from 2028).
- Usually up to 25% of the money you have in a pension can be paid to you tax free (up to a maximum of £268,275), and the rest is 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.
Scottish taxpayers pay different rates of tax so the amount they can claim back is different. Pension and tax rules can change, and the value of any benefits will depend on your circumstances.
Want to learn more about tax relief?
How much can I pay into my pension?
It all depends on how much you’re earning and whether you’ve already taken money from a pension.
Scenario 1: You’re not working, or on a low income
If you’re earning less than £3,600, or you’re a non-earner, you might be surprised to learn that you can still pay in up to £2,880 each tax year and the government will automatically add up to £720 (20% tax relief) on top.
It might not sound a lot but it all adds up. Let’s say you start saving the full amount when you’re 60. You’d have an extra £10,800 from the government by your 75th birthday.
That’s essentially free money, which you can access yourself or even pass on to your loved ones.
Scenario 2: Still working and flexibly accessed a pension
To benefit from tax relief you can still only pay in as much as you earn, but if you’ve flexibly accessed a pension, which includes taking a lump sum payment (UFPLS) or taxable income from most Flexible Drawdown arrangements, you will have triggered what’s known as the Money Purchase Annual Allowance (MPAA). This means tax-relievable contributions are restricted to £10,000 a year in total (including tax relief and any employer contributions) to money purchase pensions (like the HL Self-Invested Personal Pension).
If your pension contributions (including any tax relief) go over the MPAA, any excess will be added to your income and taxed at your highest rate. This charge should be declared and paid through your income tax self-assessment.
What is the Money Purchase Annual Allowance?
When you flexibly access a money purchase pensions, tax-relievable contributions are restricted to £10,000 a year. You can find out more by downloading our Annual Allowance Factsheet.
Scenario 3: Still working and haven’t flexibly accessed a pension
If you’ve accessed your pension, but only taken your tax-free cash or bought an annuity, you won’t have triggered the MPAA (explained above). This means you’ll be able to squirrel away as much as you earn and receive tax relief, subject to the annual allowance which is £60,000 for most people.
For example, if you wanted to use the full £60,000 pension annual allowance, and your employer paid in £15,000, you’d only need to pay in £36,000 and the rest (£9,000) would come from the (20%) basic-rate tax relief that you’d automatically get.
If you’re a higher-rate (40%) taxpayer, you could also claim up to £9,000 back through your tax return. This means the effective cost to you of a £45,000 pension contribution could be as little as £27,000.
To find out how little a pension payment could really cost you, try our pension tax relief calculator.
Watch out for the tax-free cash recycling rule
If you’ve taken money from your pension already, and you want to add more money in, you should double-check our factsheet to make sure you won’t breach the tax-free cash recycling rules. These rules aim to stop people exploiting pension tax relief benefits and could apply if you significantly increase your contributions before or after taking tax-free cash.
How to add money to your HL SIPP
If you already have an HL Self-Invested Personal Pension (SIPP), the quickest way to make a payment is online – you just need to log into your account. Please make sure you re-read the SIPP Key Features before going ahead.
If all your HL SIPP is in drawdown, you’ll need to contact us by phone or Secure Message to re-active your old SIPP. Then you can make a payment over the phone or online.
How to open a new pension
You could open a personal pension like the HL Self-Invested Personal Pension (SIPP).
You can choose your own investments, track how it’s doing online at any time, and make changes whenever you like. You’ll also have access to all the pension freedoms, when you want to take money out. If you choose to invest, remember the value can fall as well as rise, so you could get back less than you put in.
If you’re still working, we’d recommend making the most of any matched employer contributions before paying into another pension.