Martin Lewis explains ‘great way’ to boost your pension with little-known £2,800 allowance | Personal Finance | Finance

The consumer champion spoke about the lesser known rule on his BBC podcast. A question came in from a worker about their pension and how much they should pay into their private pension.

As Mr Lewis ran through the contribution rules in his reply, he had some words to say about one particular allowance. The financial expert said: “There is a rule that says you can contribute £3,600 to a pension even for a non taxpayer, or the non taxpayer can do it themselves, and they still get relief.

Tax relief boost

“So you can put £2,880 a year into a pension. The relief will come in – in a private pension – which will mean they actually have £3,600 saved on the back of putting £2,880 in.”

This refers to the fact that even if you are not paying tax, such as if do not have any income as you are out of work, you can still contribute up to £3,600 a year into a private pension. People in this situation get 20 per cent tax relief on their pension contributions, which your pension provider will claim for you as your contributions go into the pot.

So effectively you only have to pay in £2,880 to benefit from the full amount, as the extra £720 in tax relief will be claimed by your provider and added to make the £3,600 contribution. Mr Lewis explained there are several situations where you may benefit from this allowance.

‘Great way to put money away’

Mr Lewis explained: “You can do that for a child, you can do that for a baby. Grandparents can do it, parents can do it, aunties and uncles can do it. It’s often a great way for grandparents to put money away for their grandchildren and be remembered.”

The original question was from a young worker aged 23 who had just started their first job after leaving university. Mr Lewis commending them for thinking about their pension contributions at such a young age.

The savings expert also explained why it’s crucial to be paying into your pension as soon as you can in your working life. He said: “It’s really important, because the earlier you start putting money into a pension, the reason it’s beneficial, is you’ll have it in an investment.

“That investment can compound over so many years.” He shared some rough figures to illustrate why it makes a big difference to start early: “For every £1 you put in in your early 20s, you’re going to have to put in £30 in your 50s to get the same result. It’s so worthwhile doing it early when you’ve got disposable income.”