The Nutmeg personal pension centre

Tax and pensions

Pension tax relief

A pension is a great way to save and invest your money for the future because you can get tax relief on the payments you make to your pension pot. 

This means that the government adds 25% (more if you're a higher-rate taxpayer) to any amounts you put in, up to a certain limit. This limit is based on your annual earnings and capped at £40,000. You can also carry forward unused allowances for up to three years.

One of the great things about a Nutmeg pension is that we’ll automatically add the 25% government top-up as you make monthly payments into your pension pot – all out of our own funds.

If you’re a higher or top rate tax payer and able to take advantage of the higher tax relief, you can claim these additional amounts through your annual tax return form.

If your income tax bracket is And you add The gov't tax relief is To give you a total pension contribution of
20% £80 £20 £100
40% £60 £40 £100
45% £55 £45 £100

There is also a lifetime allowance with pensions. This is the upper limit on pension benefits you’re allowed to receive before you have to pay tax. The lifetime allowance is currently £1m as of 6 April 2016. Any amount above this is subject to a charge of 25% if paid as a pension or 55% if paid as a lump sum. 

The lifetime allowance was reduced for this tax year from £1.25m to £1m. If you think your pension savings will be affected you may be able to apply for protection. Two types of protection are available:

  • Fixed Protection 2016 (FP16) will give you a protected lifetime allowance of £1.25m, but you cannot carry on saving into your pension.
  • Individual Protection 2016 (IP16) is available if your total pension savings on 5 April 2016 are over £1m. You will have a protected lifetime allowance equal to the value of your pension savings on that date, up to a maximum of £1.25m. You can continue saving into your pension, but any savings you make over your protected lifetime allowance may be subject to a tax charge.