Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

Pension contributions – are you missing out on free money?

The tax benefits of pensions are one of the reasons they are such a great option for saving towards retirement. You don’t pay Income Tax or Capital Gains Tax on your pension investments, and the Government also gives you tax relief on your pension contributions.

Gary Smith
17 July 2017

The Government tops up your pension contributions

Anything you pay into your pension will be topped up by the Government, up to your annual allowance (usually £40,000). Everyone receives basic-rate tax relief of 20% – so a gross contribution of £1,000 would only cost you £800.

Higher and additional-rate taxpayers can then claim back a further 20% or 25% respectively – bringing the total cost of a £1,000 contribution down to as little as £550.

A big difference to your investment returns

The effects of this initial tax relief can be amplified over time if we consider your investment returns. Let’s assume that you paid £800 into your pension and received basic-rate tax relief, bringing the total contribution up to £1,000.

If your investment grew 10% in a year you would have £1,100. If you didn’t get tax relief – for example by paying the money into an ISA instead – you would have £880 and be £220 worse off. Over the course of a long-term investment like a pension, this can make a huge difference.

16 million people are unaware of tax relief on pension contributions

Clearly this top up to pension contributions can make a big difference to your savings over time, and yet many people are unaware of it. Research from Blackrock has revealed that a massive 16 million British people were in the dark when it comes to pension tax relief*.

This isn’t a new issue either. The Government’s consultation on altering pension tax relief has previously highlighted the fact that many Brits weren’t aware of the benefits. This begs the question – how much tax relief has potentially been missed out?

Make the most of pension tax relief with our Best SIPP

The Best SIPP is our award-winning personal pension. It makes saving for retirement easy by giving you:

  • Free support from our telephone team and 24-hour access to your online account
  • 0% annual fees if you invest in a Ready-made Portfolio, or 0.3% a year (or less) if you choose your own investments
  • A single place to consolidate all of your pensions – making them easier to manage**

Find out more about the Best SIPP in this guide or open a SIPP today. If you have any questions or would like some help getting started, please call us on 020 7189 999 or email

Important information

*Blackrock’s 2017 Investor Pulse survey.

**Before you consider transferring a pension, it is important to ask yourself: Will I lose any valuable benefits or features from my existing pension plan? Will I incur any penalties on my existing pension if I transfer? Is it an occupational final salary pension scheme? (in which case it is very unlikely to be advisable to transfer) Have I considered the charges on my current plan? (a new arrangement may be more expensive – especially if you have a stakeholder pension).

SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you then a SIPP might not be right for you. Please contact us for guidance or advice if you are unsure whether a SIPP is right for you.

Please note we do not give tax advice.