We read your article on non-taxpayers paying up to £2,880 into a pension and getting tax relief on it. My wife and I had previously looked into a pension for her, but didn’t think she could have one as she doesn’t work. Your article said that we could set up a scheme for a non-taxpayer and I could pay into it on her behalf, but we cannot find out where we could do this. Have we understood the article correctly?
The first thing to know is that anybody can pay as much money as they want into a pension.
However, an important reason for making pension contributions is to benefit from initial tax relief.
There are four limits on how much tax relief you can receive on your pension contributions each year. The maximum you can pay into your pension and receive tax relief on is the greater of £3,600 or 100% of your relevant UK earnings each tax year. You also stop getting tax benefits if you contribute more than £40,000 into your pension in one tax year, although this would reset with the new tax year.
Finally, if you have already accessed money in your pension, then you can only pay in £4,000 a year and receive tax relief.
The important figure for your wife is the £3,600 limit. As she is a non-earner this is the maximum she can pay into her pension each year. This equates to the £2,880 figure you have mentioned; this is the net contribution figure which is boosted to £3,600 when 20% basic-rate tax relief is added.
In order to make pension contributions, your wife may be able to add to an existing pension that she has or she can start a new pension arrangement. She can find a pension provider online. Providers we use include Aegon, Royal London and Standard Life. If she wants help, she can take independent financial advice.