One of the great reasons for paying into a pension is the tax benefits.
You get tax relief at your marginal rate, which is 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional taxpayers.
It means that when you pay into your pension, the government tops it up, effectively giving you free money - although you do get taxed when you come to withdraw that money at retirement.
Paying into a pension also has the benefit of extending your income tax allowance, increasing the amount you can earn at each income level before you need to pay the next level of tax.
But while there’s a limit on how much you can pay into your pension each year, there is a rule around it if your income fluctuates a lot.
Keep reading with a 7-day free trial
Subscribe to Money Talk to keep reading this post and get 7 days of free access to the full post archives.