Your pension questions answered
RENFREWSHIRE CITIZENS ADVICE BUREAU ANSWERS YOUR QUESTIONS
date on your pension plan is noted as 55.
How much can I contribute into pensions each year?
The amount you can pay into your pensions depends on your yearly annual allowance. The annual allowance is the limit you can contribute to your pensions while still gaining tax relief.
This allowance is set to the lower of £60,000 or your relevant earnings.
For example, if you received annual earnings of £30,000, your annual allowance would be £30,000.
If you received annual earnings of £70,000, your allowance would be capped at £60,000.
The annual allowance is made up of three elements: your personal contributions, your employer’s contributions, and tax relief from the government.
So, if you wanted to utilise your full annual allowance, you (and your employer) can pay the net amount of your salary into a pension each year, and the government will top it up to the gross figure.
For example, if you are a basic rate tax payer, paying 20 per cent tax, for every £80 contributed into your pension, the government will top up to a gross amount of £100.
If you do not work or receive relevant earnings, your annual allowance is set to a maximum of £3,600 gross, meaning that you can pay the net amount of £2,880 into a pension, and the government will pay an additional £720 in tax relief.
These annual allowances are applicable until the age of 75, when tax relief will no longer be payable.
Accessing some of your pension benefits while still contributing to other pensions can considerably reduce the amount of tax relief you can receive. Before you make a final decision on withdrawing money, you should consider that this reduces the total amount you could pay into a defined contribution pot (also known as money purchase pensions) from the maximum of £60,000 to £10,000 per annum.
Will I pay tax on my state pension? State pension income is taxable, but is usually paid without any tax being deducted.
The amount of income tax you pay depends on your total income from state pension plus other sources, including earnings, rental income, and other private/ company pensions.
If the total amount of income received per year is over your personal allowance, tax will be payable based on the marginal rate that your income falls into.
The standard personal allowance for the tax year 2023/2024 is £12,570.
Please note, your personal allowance might be more or less than the standard figure due to a number of other factors.
If your total income is less than the personal allowance, you will not pay any tax.
Tax will be deducted from your other sources of income, not your state pension.
Do I need to pay National Insurance contributions on pension income? No. National contributions are collected on income from employment or self-employment.
They are not paid on payments from a pension.