In recent years, we’ve developed a range of handy tools and calculators to help make it easier to plan financially for your retirement. They’ll enable you to understand things like how much income your pension could generate in retirement, the impact of inflation on your pension’s value and how to plan your pension withdrawals. With the information they provide, you can adjust how much you want to contribute to or withdraw from your pension. This month we take a look at our Pension Tax Relief Calculator and how it works.
Pension Tax Relief Calculator
Tax relief is one of the biggest benefits of saving into a pension. Most UK taxpayers get tax relief on their personal pension contributions, which means the government effectively adds money to your pension pot. The amount you receive depends on which tax band you’re in. Most basic rate taxpayers get a 25% tax top up; HMRC adds £25 for every £100 you pay into your pension, making it £125.
Our Pension Tax Relief Calculator helps you calculate how much tax relief you could get on any pension contributions you intend to make.
You can usually receive pension tax relief on personal contributions, up to £60,000 (2024/25) or 100% of your salary (whichever is lower). This amount is known as the annual allowance and any contributions you make over this limit are taxed at your highest rate.
How our Pension Tax Relief Calculator works
You’ll only need two pieces of information to use the Pension Tax Relief Calculator:
- how much you earn annually; and
- how much you’d like to contribute to your pension each year.
The calculator will show you how your desired total contribution will be made up between your contributions and government top ups. For example, if you want to make a total annual contribution of £5,000, you’ll only need to contribute £4,000 as HMRC will add a 25% tax top up of £1,000.
How will it help you?
With this information, you may want to adjust how much you contribute to your pension. For example, once you know how much you’ll get in government top ups, you may decide to increase your personal contributions to reach your desired retirement income faster.
Another useful feature is understanding whether you can claim back extra tax relief, beyond the basic rate, and how much that could be. Your annual income will determine which tax band you’re in. Those in the higher or additional rate tax bands may be eligible for extra tax relief.
It’s worth noting that basic rate pension tax relief is automatically added to eligible contributions with PensionBee, however, if you’re a higher or additional rate taxpayer the extra tax relief won’t be automatically claimed for you, so you’ll need to complete a Self-Assessment tax return.
There are some restrictions around how tax relief on pension contributions works. For instance, you won’t be able to receive tax relief on contributions from your employer. You’ll find more of these restrictions and considerations listed under the calculator and in our in-depth article on pension tax relief.
Combining calculators
Once you know how much tax relief you could earn on your personal pension contributions you can use this information in our other tools. For example, if you decide to adjust your pension contributions after using the Pension Tax Relief Calculator, you could then use our Pension Calculator to see how increasing or decreasing your contributions could impact your projected retirement income.
Making contributions
With PensionBee you can contribute to your pension in just a few clicks with Easy bank transfer or by setting up a regular bank transfer. You can contribute once or on a regular basis. There are no minimum contributions, so you can save any amount, as often as you like.
Future product news
Keep your eye out for our next product blog or catch up on previous posts. We’re looking forward to spotlighting more of our handy features and free financial tools plus we’ve got lots of great new updates in the works we’re looking forward to bringing you this year. We’ll let you know what they are, how they can help you save for a happy retirement and how to get started.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
