Do pensions get topped up by govt?

[Huckleberries]

Looking for a straightforward answer to this question, please

I haven't worked for a while. I'm thinking of putting some money into my SIPP. It would be a small amount from a small inheritance. Probably about £10,000.

If I put that £10,000 into my SIPP, do the government literally give me 20%? I don't understand how this works. And it seems too good to be true.

There are no other calculations at play because I have not worked for a while. When I work, I am nowhere near the high tax band.

So I'm really looking for a yes or no answer - do the government give me extra money on a payment made into my pension?

If yes, how do they pay it?

Thank you if anyone can advise.

Yes

Yes, your pension provider claims it on your behalf and adds it to your account.
https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief
There is a limit for non-taxpayers, but you won't be affected if paying in £10k.

No, not if you are not working (well,paying income tax anyway)
It’s only if you have paid tax in a given year - a refund of tax paid in effect. If you haven’t paid tax, you can’t have tax relief!

You used to be able to put a very small amount in (around £3600 a year) without earning and get the 20% bump just on that. MSE would be the place to see if that scheme is still in place

Yes - but if you aren't working, you can't pay in 10k.

See here: https://www.aviva.co.uk/retirement/aviva-pension/knowledge-centre/sipp-tax-relief-and-allowances/

"If you’re not earning, you’re not paying tax. But you can still make pension contributions up to £3,600 a year, which includes 20% tax relief."

Put it in over several tax years to get the tax relief top up

But you can still make pension contributions up to £3,600 a year, which includes 20% tax relief."

Meaning you pay in 2880 each tax year to get tge govt benefit . If you pay it in all at once you will only get the max top up for that year

We put into a pension for our daughter (aged 3 so obviously not working 🤣) for the maximum each year and it's £2880 of our money but with the tax relief top up it's £3600, if that simplifies things even further for OP

If you don’t earn an income, you can still save up to £3,600 into a pension each year (you pay £2,880 with the government topping up a further £720)

I also understand this is the situation.

Oh whoops, sorry, I completely misread the govt website as the amount they would add, not the limit you could pay in. Ignore me; the other posters have it right.

If you don’t earn an income, you can still save up to £3,600 into a pension each year (you pay £2,880 with the government topping up a further £720)

This means each tax year.
So pay in 2880 now and 2880 after 5 april next year
The provider should arrange the top up

as you are not working (paying income tax on earnings) the tax relief you can get is limited to £720 which is 20% of the £3,600 limit that applies in such a situation

you can pay in more than 3,500 but you will not get any tax relief on it, hence the suggestion to drip feed in only 3,600 each tax year

as for the tax relief itself, you will not be handed cash, Depending on your pension fund the norm would be they add 20% to the amount you paid into it so the size of your pension pot is bigger. Whether that means you will get a bigger pension when you actually retire then depends on how well your pot performs as an investment.

Thanks so much, everybody, that's really helpful

Is it worth putting in more regardless of the top up? I mean in some ways it's an investment in shares. ISA is used up for the year.

I don't normally invest in shares apart from having a pension.

I guess the calculation is how much it would grow in your pension in the intervening period? I would be tempted to tip in £7120 this year and hold back £2880 to do on 6 April 2026 - that way it's all in in the next 6 months for maximum growth/compound interest, but you've go 2 years worth of tax relief back from the govt.

Well you won’t be able to get it back until you are 58 (at least, it’s bound to keep going up)so imo it depends what your overall situation is.
Personally, I’d put it in via dribs and drabs first the next 3-4 years to maximise the 20% bonus and put the rest in a savings account for the interim.
Assuming we don’t get a nasty surprise in tte budget to change the rules on us of course!

Please can you explain how I would get two years Worth? I thought the advice was to limit it to 3600. And what is the six month thing, please? Thank you.

I am in the same position as you, OP, and as @Thickasabrick89 as I'm funding SIPPs for my DCs while not working.

If you are not earning then you can put up to £2880 of money per tax year and claim tax relief on it. Your SIPP provider will claim the tax relief from HMRC and add it to your SIPP account a few weeks later (mine is with AJ Bell - if I pay in before the 5th of the month then the tax relief is credited by about the 25th of the following month). The 20% relief is on the gross amount, so the top-up is actually 25% of the net (post tax) amount you put in.

Whether it's worth adding more without any tax relief is a tricky one. Any growth would be shielded from CGT in a SIPP. Against that you'd have to declare it as income when you take it out and would then get taxed on it at your marginal rate, for a start, and you cannot draw it out until you're 55, rising to 57 in 2027. I dare say the minimum age will go up in future too. You'd also have to ensure that if the SIPP provider does claim the tax relief then you somehow ensure it's paid back.

Personally, I don't. I put the £2880 into mine, and my DCs SIPPs each year, and the rest goes into ISAs.

You get an allowance per tax year. This tax year is half way through, the next start on 6/4/26

Can you carry forward unused allowance from a previous year if you are not working? Your pension provider may know if no one on here does.

The benefit a pension is the up front tax relief as it is taxed when you take the money. If you put in more your allowance you won't get tax relief going and will pay tax taking it out so you are better off using an ISA, which is tax free. If you've used all allowances this year then it's probably worth waiting until you get new allowances in April.

@InveterateWineDrinker thank you that's really helpful. Yes, the age will certainly go up, my provider has already said that to me

@ConBatulations I will ask my provider that. Thank you that's brilliant. I didn't put anything in last year either.

@Dunnocantthinkofone I probably misunderstood what you were saying. I thought you were saying that I could get two years worth of benefit in this year.

this is brilliant, thank you so much. I basically wanted to ask people who would give straight answers before I talk to My my pension provider. I never really understand what they're saying. I think it doesn't help that they talk from a script and can't account for unusual circumstances.

The points about CGT are really good as well unless it all gets changed

They should really tell you that if you're not working, you get free money if you are still able to top up for some reason. That's really what the pension provideR should have told me. Going on about tax relief made me think it was only if I was working and paying tax. Again, I suppose it's because unusual circumstances never get covered.

That's really helpful. When I get my head round it all, I will give them a ring and do a top up but I will have a think about how much.

@ConBatulations "If you put in more your allowance you won't get tax relief going"

do you mean if I put in more than 2880, I won't get any extra given to me by the government?

You can carry forward previous years' allowance but there are qualifying criteria, one of which is that in the year you make the contribution you need to be earning more than the amount you want to pay in. If you're not working, this basically cuts the option off.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

If you have no income you can pay in £2880+720 tax relief. If you pay in more you still only get the £720 tax relief whereas if you wait until next tax year you would get a new allowance and tax relief on that.

Private pensions will all be subject to income tax when taken as the state pension will likely use all your tax free allowance.

It's worth checking to see if you will get a full state pension. You can top up missing years and this may be a better investment than paying into a private pension.

Put in £2880 a year, then you maximise the 20% top up. You can put the balance into an ISA and just transfer the max £2880 a year until it has all gone.

Why would you tie up your money in a pension without the tax relief? And then pay tax on the way out?

Even if you have already maxed out your ISA allowance, there’s nothing from stopping you investing in a normal investment account and then feed it through ISAs later or pay tax on any profits you crystallise.

Don’t let the tax tail wag the dog.

I've just actually done this.. last year when I was working I was allowed to put the same amount as my yearly income in to my private pension..but in May I was hoping to do the same but could only put in £2880 because I took early retirement.. and yes it was topped up to £3700.