Pensions and tax
This page and the pages that follow give you basic information on the state pension and UK personal and occupational pensions. It is for general guidance only and does not constitute pensions advice, such as which type of scheme might be best for you, or whether or not you should pay into a particular pension. Such advice can only be given by a suitably qualified financial adviser.
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If you are a relevant UK individual and are under the age of 75, you can usually get tax relief on contributions you pay into pensions. We explain more about how tax relief is given on our page Tax relief on pension contributions. The idea is to encourage people to provide for their own retirement rather than rely on the state pension.
As well as paying into your pension tax free, any growth on your pension savings within the fund is also generally free of tax.
To explain further: The money that you contribute into your pension pot will be invested by the pension company. Any returns that are made by the pension company are further invested, so that returns are earned on top of returns from that moment on. This is known as ‘compounding’ and it works as set out in the example below.
There are never any guarantees, but because compound interest is one of the most fundamental ways to build a pot of money, usually your pension pot will be expected to grow over time, even after allowing for inflation and pension scheme charges. There is no income tax or capital gains tax to pay each year on any growth within the pension pot.
Taking money out
You should bear in mind that once your money has been saved into a private pension there are rules on how much you can take out (depending on the type of pension you have) and when you can take it. You can read more about these rules on our page Pension withdrawals.
When pensions are paid out to you on retirement they are generally taxable, but you should be able to take part of the pension as a tax-free lump sum. You can read more about this on our pages Tax on pension income and What pension income is tax-free?.
Pensions are complicated. MoneyHelper provides free information and guidance on pension schemes. It is backed by the government.
The government offers a free service, called Pension Wise (as part of MoneyHelper) aimed at people thinking about taking money out of their pension. This provides basic information on your possible options.
HMRC have a general helpline for individuals, pensioners and employees, which you can phone if your question relates to income tax on your pension.
GOV.UK has more information on various types of pensions.