Pensions are a tax effective way to save

Pensions are a tax effective way to save

When you save into a pension from your pay, you can get tax relief on the money you put in. This means you do not pay Income Tax on the money you pay into your pension. You can also save on National Insurance by making extra contributions through salary sacrifice.

How much you save on tax and National Insurance depends on how you save into the Fund.

  • Fixed extra voluntary contributions you set up will save you Income Tax and National Insurance that will go into your pension pot.
  • Variable extra voluntary contributions (regular or one off payments), will only save you Income Tax that will go into your pension pot.

Find out more about making extra savings

You will only get tax relief on what you save up to the level of your earnings for that tax year. Unilever will not let you put in more than your Unilever earnings in any year, so you will only go over this limit if you save more into another pension scheme.

Tax limits on what you can save

It’s important to be aware of certain limits on tax relief, especially if you’re a high earner.

Annual allowance

The government sets a limit on how much money can go into all your pension accounts every year and still receive tax relief. For most people this is currently £60,000 per tax year. It may be lower if you are a higher earner, or if you have taken cash or drawdown from a defined contribution pension scheme.

If you go over this allowance, you’ll have to pay tax on the extra.

Inputs that count towards this allowance are:

  • Money you pay in to your Unilever pension pot
  • Money Unilever pays in on your behalf
  • Money paid (by you or anyone else) in to any other pensions you may have

You are responsible for checking that all the money saved into your pensions over a tax year does not go over the annual allowance.

We will let you know if your savings with Unilever go over £60,000.

More on the annual allowance

You can generally carry forward unused annual allowance from 3 previous tax years. The amount you can carry forward will change from year to year. This is because the value of the annual allowance has changed over the years. It can also be reduced if you earn above a certain amount. This means you need to check what allowance applied to you and how much of it was unused in each previous tax year when working out how much you can carry forward.

How carry forward works

If you do need to pay tax on money paid in over the annual allowance, you can do this through your Self Assessment Tax return.

Tapered annual allowance - elderly couple sat at table looking at mobile phone

Tapered annual allowance

The annual allowance is reduced for very high earners, which may also affect you if your income is high in a tax year (for example if you get a large lump sum due to redundancy).

In summary your annual allowance may be reduced if:

  • Your taxable income (ignoring any salary sacrifice) plus your Benefits Envelope is over £200,000 and
  • Your taxable income plus money paid into your pension (including by your employer) is over £260,000

If the tapered allowance does apply, your annual allowance will reduce by £1 for every £2 you are over the £260,000 limit. The smallest your allowance can reduce to is currently £10,000.

Working out your tapered annual allowance can be complicated, so you might want to get financial advice.

Tapered annual allowance

Money purchase annual allowance - Elderly grandparent in garden with grandson

Money Purchase Annual Allowance

If you start taking money from the Retirement Savings Plan or another pension scheme like it where your money is invested in your own pot, your allowance might reduce. The reduced allowance is called the Money Purchase Annual Allowance and is currently £10,000 a year. It applies to savings you make into defined contribution pension arrangements, like the Retirement Savings Plan. You’ll be told when you take the money if the Money Purchase Annual Allowance applies to you.

Money Purchase Annual Allowance

Tax limits on money paid out

As well as getting tax relief on what you pay in, some money can be paid out of pension schemes without a tax deduction.

Lump sums

At retirement you can use the money in your pension pot to:

  • Buy a pension
  • Get a cash lump sum
  • Draw an income

When you do this, you will have the option to take some of it as a tax-free cash lump sum. This is normally 25% of the money you are using.

There is a maximum amount you can take from all your pensions as a tax-free cash lump sum at retirement. This is the lump sum allowance and for most people it is £268,275.

We will let you know how much of this allowance you have used when you take your Unilever pension. You are responsible for providing us with the information we need to calculate this.  

If you previously applied for lifetime allowance protection from HMRC, your lump sum allowance may be higher.

Any amount you take as cash over the lump sum allowance will be taxed as income.

Death benefits

In the event of your death, your pension pot will normally be paid as a lump sum. This lump sum is tax-free if you die before age 75 and it’s paid within 2 years of your death.

There is a maximum amount of tax-free lump sum death benefit that can be paid. This is the lump sum death benefit allowance and for most people it is £1,073,100.

The following are measured against this allowance:

  • Death benefit lump sums from any scheme paid on your death

  • Serious ill-health lump sums paid to you before your death

  • Certain tax-free cash lump sums paid to you before your death

If these add up to more than the allowance, then tax is paid on the excess.

If you have taken pension scheme benefits before 6 April 2024, these will be taken into account when working out your available allowance. Please contact us if you need more information.

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