Most people will want to make sure they have as much money as possible for retirement. Leaving the workforce means departing from a regular salary or wages which could be unsettling in terms of finances.
Therefore, apart from the safety net of a state pension, many people will be saving into their own workplace or private arrangement to help them.
Often considered the key advantage of saving into a pension, tax benefits can make a real difference.
For most pension arrangements, this will be tax relief, described as a “hidden hero” for savers.
When paying into a pension, some of the money that would’ve gone to the Government as tax instead goes towards a person’s savings.
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Standard Life added: “Depending on your plan, tax benefits can work differently to what we’ve described.
“If you’re part of a salary sacrifice or salary exchange scheme, for example, you might get tax benefits in a different way.
“But the idea’s the same – you can get a financial boost from the Government, which can make it quicker and easier to increase your pension pot’s value.
“This may be particularly reassuring if you started saving a bit later in life.”
If the scheme is not set up for automatic tax relief, then Britons will need to be proactive about the matter.
They can claim their tax relief through a Self Assessment tax return in this circumstance.
Those who do not pay income tax may also still benefit from pension tax relief.
These people still get automatic tax relief at 20 percent on the first £2,880 they pay into a pension each tax year.
However, both of the following must apply:
- A person does not pay income tax, for example, because they are on a low income
- A pension provider claims tax relief for the person at a rate of 20 percent through relief at source.