Tax on Pensions Explained

Tax relief is an important part of the appeal of pensions. We explain how it works, and what you have to look out for

Faith Glasgow 21 September, 2021 | 9:36AM
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graphic of tax book and cash

The single biggest attraction of saving into a pension is the way your money is treated by the taxman. Why is the government so generous when it comes to pensions, and more importantly how does the tax work, both when you make a contribution and when you eventually access your nest egg?

The government has a vested interest in encouraging people to take financial responsibility for their retirement years rather than relying on the state. So, as an incentive to save for the very long term and to help their wealth grow faster, HMRC has made saving into a pension the most tax-efficient way of building wealth.

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Faith Glasgow  Faith Glasgow is a freelance journalist specialising in pensions and investment trusts