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A tax advantaged way to save

The main reason many people save for their retirement using pensions is because of the tax advantages of investing this way.


Important information

Please remember the value of your investments and any income from them can go down as well as up. The value of your fund may be less than you paid in.

Before you choose a SIPP, make sure you understand its aims and risks. If you are unsure as to the suitability of any particular investments, you should seek professional financial advice. Alliance Trust Savings does not give advice. A SIPP requires active management and investment expertise. You should make sure you review your investments regularly. You normally cannot take an income from your pension until age 55.

Laws and tax rules may change in the future without notice. The information here is our understanding in January 2017. This information takes no account of your personal circumstances which may have an impact on tax treatment.

Tax relief on the way in

The government incentivise pension savings by giving tax relief to most people when they pay into their pension. You can think of it as the government topping up the money you pay in out of your own pocket. And almost anyone can benefit.

Here’s how.

People who don’t pay tax

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Including tax relief, you can still pay in up to £3,600 each year to a pension. So you actually pay £2,880 and, with basic rate tax relief at 20%, HMRC tops this up with £720.

Basic rate tax payers

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If you pay in £8,000 from your own pocket, with basic rate tax relief at 20% HMRC tops this up with £2,000.

Higher rate tax payers

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If you pay in £8,000 from your own pocket, with tax relief at 20% HMRC tops this up with £2,000. And because you are a higher rate tax payer you can then claim back up to another £2,000 through your self-assessment tax return (as long as you’ve paid that much tax at the higher rate).

Additional rate tax payers

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If you pay in £8,000 from your own pocket, with tax relief at 20% HMRC tops this up with £2,000. And because you are an additional rate tax payer you can then claim back up to another £2,500 through your self assessment tax return (as long as you’ve paid that much tax at the additional rate).

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Your annual allowance

Each tax year there is an annual allowance for the total that you, your employer and anyone else making payments on your behalf can together pay in or build up across all registered pension schemes in your name. This limits the personal payments on which you can actually claim tax relief.


The annual allowance is currently £40,000 or 100% of earnings (whatever is lower) (unless you are already taking money out from a pension, when it usually goes down to £4,000).

You will have to pay a tax charge on anything above your annual allowance, unless you can use up (‘carry forward’) any left-over annual allowance from up to the three previous tax years.

Tapered annual allowance


If you have earnings of more than £150,000 in a tax year then your annual allowance for that tax year is restricted.

For every £2 of income that exceeds £150,000, £1 of annual allowance will be lost. The maximum reduction is £30,000. It will be reached if you have earnings of at least £210,000 in the tax year, resulting in an annual allowance for you of £10,000.

The tapered annual allowance is applied each tax year separately, so you may have a tapered annual allowance in one tax year and a full annual allowance in the next tax year depending on your earnings.

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Your lifetime allowance

There is a lifetime allowance for all your pension savings. The lifetime allowance for 2017/2018 is £1 million.


You might have to pay a lifetime allowance charge of up to 55% on anything you take out from any registered pension scheme above your lifetime allowance.

In recent years the lifetime allowance has been reduced. If you applied for protection from these changes you may have a lifetime allowance higher than £1 million.

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Tax efficiencies when saving and withdrawing

  • Pension savings are exempt from Capital Gains Tax. Considering you could be investing for more than 30 years that’s an important tax advantage.

  • Everyone has to pay tax at 10% on any dividends they receive, but in a pension higher rate or additional rate tax payers don’t have to pay any further tax on top.

  • Once you reach the age of 55 you can take up to 25% of your pension savings out in one or more tax free lump sums.

Accessing your pension savings

Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.