New research by Octopus Money has found that many people who may be retirement planning in Oswestry or Cheshire are still unaware of a little-known yet useful pension rule.
In the UK, there is a rule that partners, relatives and friends can pay into your pension, something which may appeal to people who have taken a break from work or are home looking after children. The rule was first established over 25 years ago and yet, according to the research, nearly two thirds of people questioned had no idea it existed.
Under HMRC policy, a third party is allowed to pay a maximum of £2,880 per tax year into the existing pension of a non-earner. When that happens, the pension holder is automatically entitled to 20% tax relief. For the full amount, the topped-up figure would come to £3,600. Any third-party contribution can be agreed as either a lump sum or as a monthly payment.
Even if you are working, another person is still permitted to contribute to your pension, but only on the basis that they do not breach the tax relief limit. That is defined as the higher of £3,600 gross, the entirety of one’s relevant UK-based earnings or their yearly pension allowance. For the current tax year, that comes to £60,000, unless they are earning in excess of £260,000. Beyond that, it is gradually reduced to reflect the adjusted, tapered annual allowance.
One further perk is that the payer might also stand to benefit, by saving tax more efficiently, in situations where they have already maximised their own unique pension contributions.
