A workplace pension is a retirement savings plan set up by employers for their employees. Through this scheme, a portion of your earnings before taxes is automatically diverted into a pension fund every payday, contributing towards your retirement savings.
How a Workplace Pension Operates
Your employer contributes a predetermined percentage of your salary to the pension scheme. Additionally, you have the option to make your own contributions to enhance the amount being saved. For these contributions, you're entitled to a basic tax relief at the rate of 20%, which the pension provider typically claims on your behalf and then deposits into your pension account, a process known as "automatic relief."
Tax Benefits for Higher Earners
If your earnings surpass the higher tax rate threshold, currently set at £50,270 for the 2023/24 tax year, you're eligible for additional tax relief beyond the basic rate. This extra relief can be 20% or 25%, depending on your income bracket, and can be claimed by completing a Self Assessment tax return. This system ensures that individuals contributing more to their pension can receive proportionate tax benefits, making workplace pensions a valuable tool for retirement planning.
