Tax
While you’re saving
You don’t pay tax on what you pay in
Saving into a pension plan is a tax-efficient way to save for your retirement. This is because you don’t pay tax on your pension contributions.
Tax relief means that pension contributions cost you less than the amount going into your pension.
- If you’re a basic rate taxpayer, every £1 that you pay towards your pension only costs you 80p.
- If you’re a higher rate taxpayer, every £1 that you pay towards your pension only costs you 60p.
You can also save on National Insurance
If you make contributions by SMART – the salary sacrifice arrangement – you also save on National Insurance.
Salary sacrifice means that your salary is reduced by the amount of your pension contributions and your contributions are paid by Cummins instead, along with their contributions. This means that you only pay National Insurance on your reduced salary.
The government is introducing a cap on the amount of salary sacrificed contributions that can benefit from National Insurance relief. This will mean that from April 2029, you’ll only make National Insurance savings on £2,000 of contributions made through SMART each year.
The government sets limits on the amount of tax relief you can get on your pension. For more information, see Savings limits.
When you take your benefits
You can usually take up to 25% of the value of your pension fund, up to £268,275, as a tax-free cash lump sum.
You pay tax on the rest of the income from your pension fund in the same way as you pay income tax when you’re working.