The government wants to encourage you to save into your pension, so that you’ll have more money when you retire. That’s why they allow tax relief on your pension contributions. Your workplace pension is a net pay scheme, which means your pension contributions are taken from your gross salary before income tax is deducted. This reduces your taxable pay, meaning you pay less income tax at source.
The investment growth on the money both you and your employer pay into your pension will also benefit from favourable tax incentives.
Watch the next video in our pension basics series, How much should I save into a pension?, to learn more about how much you should be putting away for your future retirement.
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