Pension tax relief is the pension superpower to know

Research found only 31% of people could identify pension tax relief. The system redirects some income tax into pension contributions, boosting contributions in line with a person’s income tax rate.

Less than a third of people could identify the purpose of pension tax relief, according to research by Hargreaves Lansdown. Pension tax relief redirects some income tax that would otherwise go to the Treasury into a pension when a person makes a contribution. Commentators cited in the reporting said low awareness may leave some eligible relief unclaimed and that clearer language might help understanding. Key points: - The survey found 31% of people could identify the purpose of pension tax relief. - For basic-rate taxpayers (20%), paying £80 into a pension is topped up by the government with £20 to make a £100 contribution. - Higher-rate (40%) and additional-rate (45%) taxpayers receive larger top-ups in principle, so a £100 pension contribution effectively costs them less, but the extra relief beyond the basic rate is not always applied automatically. - Annual pension tax relief is subject to an allowance: £60,000 a year or 100% of earnings if lower, with reduced limits possible for very high earners. - A "carry forward" rule lets people use unused annual allowances from the previous three tax years to increase pension contributions. - Self-Invested Personal Pensions (SIPPs) can receive government top-ups on smaller net payments (for example, a £2,880 net payment being grossed to £3,600), and children’s SIPPs can attract government additions up to £720 a year. Summary: The reporting highlights low public awareness of how pension tax relief boosts contributions and notes that some extra relief routinely goes unclaimed. Higher and additional rate taxpayers are reported to often need to claim the extra relief, frequently via a tax return, and the tax return deadline at the end of January is mentioned in the coverage.