Within the allowances, pensions continue to be a tax-efficient investment. Typically, for each contribution you make into a pension, your scheme can claim basic rate tax relief, and this is added to your pension fund. This means if you pay in £80, it can be boosted to £100 actually invested.
If you pay Higher or Additional rate tax, then you can show your pension contributions on your self-assessment tax return, to potentially claim back tax.
If you are employed, your employer may offer a pension scheme where you pay contributions before tax is calculated and your employer may also contribute to your pension. This way of contributing, known as 'salary sacrifice' may be able to offer you a way to save both National Insurance and Income Tax. Check your options with your employer.
All contributions into pensions are subject to allowances:
- Annual Allowances which apply to contributions in each tax year and vary according to your circumstances (can be between £10,000 and £40,000 or more)
- A Lifetime Allowance (reduced to £1 million in 2016/2017), which restricts overall tax relief on the overall pensions built up over your lifetime.
For more information about the allowance and protection from the reductions visit https://www.gov.uk/tax-on-your-private-pension. By keeping within the Annual and Lifetime Allowances, you can still potentially invest large amounts tax-efficiently.