Beginners' guide to pensions and retirement

How does it work if I am a basic rate taxpayer?

If, for example, you make a payment of £80 a month to your individual pension plan, HM Revenue and Customs will top it up with an additional payment of £20 (basic rate tax relief). So you now have £100 a month going into your pension plan.

What you pay:	£80
Add tax relief:	£20
Total going in to your pension:	£100

How does it work if I am a higher rate taxpayer?

If, for example, you pay the same £80 you'll get the same automatic £20 top-up. You can then claim the difference between basic and higher rate tax relief in your self-assessment tax return. This is currently £20, so your £100 gross payment effectively costs you only £60 under current tax rules.

What you pay:	£80
Add automatic tax relief:	£20
Additional tax relief you reclaim:	£20
Net cost to you:	£60
Total going in to your pension:	£100

The information on this page is based on current tax rules, which may change in the future.