Individual pension contributions
This briefing sets out the points to consider for individuals making personal contributions to pensions, including eligibility, limitations and how tax relief is given.
Core considerations
- A relevant UK individual can contribute an unlimited amount to their UK registered pension scheme; however tax relief is restricted to relevant earnings or £3,600 if higher.
- Personal contributions for those over 75 do not benefit from tax relief.
- Tax relief is provided in different ways depending on the type of pension scheme the contribution is being invested in.
- Contributions must, generally, be paid as cash sums. In limited circumstances tax rules allow a contribution of shares or an in-specie transfer.
- Even if tax relief is granted it is possible that an annual allowance tax charge could apply. This tax charge effectively removes the advantage of any tax relief given.
- Where individuals have benefits that allow them to make full use of their Lump Sum Allowance (LSA) additional contributions will not increase the tax-free benefits, but would increase the flexibility of accessing those pensions, and offset funds falling in value.
Contents
- Relevant UK individual
- Contributions limits and allowances
- How tax relief is given
- Methods of payment – cash, shares and in-specie
- Contributions with transitional protections
Relevant UK individual
A relevant UK individual is someone eligible to contribute to a UK-registered pension scheme. This generally includes anyone who has UK earnings subject to income tax and is resident in the UK for all or part of the tax year in which the contribution is made.
Additionally, a person can qualify if they were UK resident at any point during the five tax years immediately preceding the contribution year and were resident when they joined the pension scheme. Individuals with earnings from overseas Crown employment also qualify, as do their spouses or civil partners.
There are no age restrictions to contribute to a pension, but tax relief is only available on contributions before age 75.
Contribution limits and allowances
£3,600 - the basic amount
A relevant UK individual under age 75 can pay contributions and obtain tax relief on the lower of £3,600 gross or 100% of their UK taxable earnings. For non-taxpayers, paying £2,880 net typically results in £3,600 invested via relief at source.
Pension contributions for children also qualify for tax relief in the same way—usually up to £3,600 a year, unless the child’s earnings are greater.
Relevant UK earnings
There is an extensive list of income that counts as relevant UK earnings, common examples include: employment income (salary, wages, bonus, overtime, commission), self‑employment/partnership profits, specified statutory payments, certain patent income, profit‑related pay, and redundancy payments above the £30,000 tax‑exempt threshold.
The following do not count as Relevant UK earnings: Income from pensions, dividends, tax deferred withdrawals from investment bonds, or since 6 April 2025 income from furnished holiday lettings.
Key allowances
Although you can contribute up to your relevant UK earnings and receive tax relief, there are limits to how much you can contribute in any tax year before a tax charge applies – the annual allowance. Both individual contributions and employer contributions count toward the annual allowance. Exceeding the annual allowance incurs an income tax charge at the client’s marginal rate.
| Allowance | Value / Notes |
|---|---|
| Annual allowance |
£60,000; may be tapered to a minimum of £10,000 |
| Money Purchase Annual Allowance (MPAA) |
£10,000 (if member has flexibly accessed pension benefits) |
| Carry‑forward of unused annual allowance | Unused annual allowance from 3 prior tax years - subject to earnings and scheme membership conditions |
Visit our Annual Allowance briefing for more information.
How tax relief is given
Tax relief is provided through: relief at source, net pay, by claiming through a HMRC self-assessment tax return and through a HMRC tax code adjustment.
Relief at source
When you make a pension contribution to a relief at source pension scheme, you pay the net amount after basic-rate tax relief, and your provider adds basic-rate tax relief. For example, if you want £1,000 invested, you pay £800 and the provider claims £200 from HMRC, making £1,000 in total. Relief at source usually applies to personal pensions, including SIPPs, and some group personal pensions.
Even if you don’t pay any income tax (for example, if your income is below the personal allowance), you still get tax relief through relief at source.
Higher and additional rate taxpayers claim further tax relief at their marginal rate through self-assessment.
If you live in Scotland and pay the intermediate rate (21%), higher rate (42%), advanced rate (45%) or top rate (48%), the provider still claims 20%, you’ll need to claim the extra tax relief via self-assessment. If you pay tax at the Starter rate of 19% the provider still applies 20% basic rate relief without any clawback from HMRC for the additional 1% tax relief provided.
Example of tax relief at source
Kevin is resident in England and has recently been made redundant. In this tax year he has received £8,000 in wages, £1,000 in overtime and £45,000 as a redundancy payment. He wants to pay £10,000 into a SIPP to top up his pension savings.
Kevin’s net relevant earnings this tax year so far are £8,000 + £1,000 + £15,000 (redundancy above £30,000) = £24,000. So, he has sufficient net relevant earnings for the £10,000 gross contribution to be eligible for tax relief.
Kevin will pay £8,000 with the provider claiming the remaining £2,000. As a basic‑rate taxpayer he has no extra tax relief, if further income moves him into a higher rate, he can claim additional relief via self‑assessment.
Net pay arrangements
Net pay schemes are most common amongst employer occupational pension schemes or group personal pensions set up under a trust. If the employer is operating the net pay arrangement then pension contributions will be by means of payroll deduction.
Unlike relief at source, contributions to a net pay scheme gives higher-rate and additional-rate taxpayers immediate full relief without the need to claim through self-assessment. Scottish taxpayers receive full tax relief at their marginal rate.
Only individuals who are eligible for tax relief and who fall into one of the following categories can have their contributions collected through the net pay arrangement:
- A member of an occupational pension scheme who is also an employee of the scheme’s sponsoring employer
- An employee member of a public service pension scheme
- An employee member of the Marine Pilot’s Benefit Fund
An employer cannot choose to let one group of employees in a scheme pay contributions under net pay and another group pay contributions under relief at source.
If a third party makes a relievable pension contribution in respect of a member the contribution cannot be paid via the net pay arrangement. Tax relief will usually only be available through Self-Assessment.
Until April 2024 non-taxpayers received no tax relief under net pay schemes. Since then, HMRC issue top up payments direct to them in lieu of the missed tax relief at the basic rate – eligibility checks and top-ups are automatic.
Claiming through self-assessment and tax code adjustment
Self-assessment is the only way to claim tax relief where none has been granted, such as contributions to old-style pre-July 1988 retirement annuity (Section 226) contracts or when a GP or dentist with self-employed income pays into the NHS pension scheme.
Where you have contributed to a relief at source scheme but pay tax at a higher marginal rate - you can claim extra tax relief via self-assessment. Claims can be backdated up to 4 tax years to recover missed tax relief.
Alternatively, if you don’t complete a self-assessment claim you can submit a claim through HMRC’s tax-code adjustment process. HMRC will not automatically provide the extra higher‑rate relief just because contributions were made. Claims must be submitted online or by post, with supporting evidence where necessary.
There may be instances where insufficient relief has been given through the net pay arrangement, such as where it is not possible for the sponsoring employer to deduct the whole amount of the contribution from the individual’s employment income. In these circumstances a member may make a self-assessment claim for the remainder of the relief.
Methods of payment – cash, shares and in-specie
Generally, contributions must be paid in money - cash, bank transfer, or deduction from members salary etc.
In limited cases, transferring certain shares acquired via a Save As You Earn (SAYE) option scheme or awarded under a Share Incentive Plan can count as a relievable contribution. This is relatively uncommon and only a few companies are willing to accept contributions on this basis.
Following HMRC v Sippchoice (Upper Tribunal, May 2020), non‑cash ‘in‑specie’ transfers do not qualify for member tax relief except for the specific eligible shares rules.
Contributions with transitional protections
Enhanced and Fixed Protection
- Applications for Enhanced Protection or Fixed Protection (2012, 2014 or 2016) before 15 March 2023 allow clients to make pension contributions without losing their transitional protection.
- Applications on or after 15 March 2023 would lose that protection if they made clients make further pension contributions.
Primary and Individual Protection
- Anyone who holds Primary Protection or Individual Protection (2014 or 2016) can make pension contributions without losing their protection.