Do I still get 20 percent contribution if I earn under the basic rate?

Markp1984

I know pensions generally get a 20 percent top up, I'm told this still applies if I earn under the basic tax rate, but I'm just making sure that's correct. Thank you very much for your help! 

NottinghamKnight

Yes it's actually a 25% top up, as it's 20% of the gross amount after tax relief has been added. So you put in £800 and the provider will top it up by £200, to make £1000 with 20% 'relief' added. You can contribute up to 80% of your gross earnings, or £3600 gross (£2880 net actually) if this is less.

Dazed_and_C0nfused

Markp1984 said:

I know pensions generally get a 20 percent top up, I'm told this still applies if I earn under the basic tax rate, but I'm just making sure that's correct. Thank you very much for your help! 

Providing it is "relief at source".

The tax benefit of a "net pay" contribution would depend on whether you had any other taxable income in the same tax year.

xylophone

Let's suppose that you earn £12,500 a year, are under 75 and contribute to a  pension scheme where tax relief is given on the at source basis. This salary is your only income and you pay no tax.

You decide that you want to contribute as much as possible to your pension.

You may make a payment of up to £10,000 to your pension scheme and the provider will claim up to  £2500 in tax relief and add it to your pot.

See https://www.linklaters.com/en/insights/publications/uk-pensions/2020/august/uk-pensions---relief-at-source-versus-net-pay

Markp1984

Thanks for the replies, sorry I should have clarified that I'm self employed and this is a private stakeholder pension. When I fill in the form to contribute I see the tax relief added on, I just want to make sure that even in this challenging year it's the same as if I earned 20k. Thanks

Markp1984

Edit:though I understand I can't pay in more than I've earned whilst still getting the extra 20 percent. 

Dazed_and_C0nfused

Yes.  Just make sure if the gross contribution is more than £3,600 that you have made that much profit.

For example if your profit is £6,000 you can only pay £4,800.  The pension company will add £1,200 giving you a fund of £6,000.

Markp1984

Dazed_and_C0nfused said:

Yes.  Just make sure if the gross contribution is more than £3,600 that you have made that much profit.

For example if your profit is £6,000 you can only pay £4,800.  The pension company will add £1,200 giving you a fund of £6,000.

Understood! I have some mental health issues and problems understanding rules so I'm very grateful for all the replies, you've all made a difference! 😊 

itsmeagain

Are we saying that a self employed person that earns £12.5k can put £10k in their pension and it be auto boosted to £12.5k, thus getting tax relief when you never paid tax on in the first place? If so, this doesn't match the gov website that says... (copy/paste)

"If you do not pay Income Tax

You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

• you do not pay Income Tax, for example because you’re on a low income
• your pension provider claims tax relief for you at a rate of 20% (relief at source)"

Are we saying that the above is wrong, as it's applicable to 'non earners' which is NOT the same as 'non taxpayers'?

Dazed_and_C0nfused

You are correct, the gov.uk website is wrong.

A non taxpayer with taxable earnings or business profits of £12,500 could contribute £12,500 (gross).

A non earner is limited to £3,600 (gross)

itsmeagain

Dazed_and_C0nfused said:

You are correct, the gov.uk website is wrong.

A non taxpayer with taxable earnings or business profits of £12,500 could contribute £12,500 (gross).

A non earner is limited to £3,600 (gross)

Do self-employed get any NI benefit by doing this or do they still pay the same NI whether they pay 80% of their income into to their pension or not?