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Consumer > How a pension works > Making payments
Making payments
Anyone below the age of 75 is able to make payments to a pension plan, or have payments made on their behalf, even if they have no earnings, such as a full time carer. This means that not only those people of a working age can have a pension, but also children can have a pension set up for them, for example, by a parent or grandparent.
As the Government recognises the importance of people saving for retirement, it offers tax relief on payments made to pension plans. This means every £1 you invest, the tax-man tops up by 25 pence. If you are a higher rate tax payer additional tax relief can be reclaimed through your tax return. (The Government reduced income tax rates on 6th April 2008. For more information on these changes please see our April 2008 tax changes page.)
There are some limits to the level of payments that you can make to a pension.
You can receive tax relief each year on payments up to the greater of £3,600 or 100% of your earnings (inclusive of tax relief). If you have no earnings you can still invest £3,600 (inclusive of tax relief) or have this amount invested on your behalf.
There is a tax charge on payments, including those made by your employer, above a maximum level each tax year. This is known as the annual allowance.
The table below shows the annual allowance for the next three tax years.
| Tax Year | Annual Allowance |
|---|---|
| 2008/2009 | £235,000 |
| 2009/2010 | £245,000 |
| 2010/2011 | £255,000 |
Your financial adviser will be able to provide more details about making payments into a pension.
References to taxation are based on our understanding of current taxation law and practice and may be affected by changes in legislation or by an individual's particular circumstances.
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