As well as the contributions that your company may pay, tax incentives are one of the main attractions of pensions.
All but the highest paid individuals will get tax relief on their contributions and everyone can choose to receive tax-free cash when they retire. However, your actual pension will be taxable. The investments returns in a pension fund are also free of tax.
Whether you're paying into PensionSaver, the Harmsworth Pension Scheme, a personal pension or pay AVCs, you won't be paying as much as you think!
If you are a basic rate taxpayer, every £1 you put in will only cost you 80p. If you are a higher rate taxpayer currently earning less than £130,000, then every £1 you put in will only be costing you 60p. The government pays the extra.
If you pay £100 into a pension plan and you are a basic rate taxpayer this is how it works:
| Month | You pay | Government pays | Total paid in |
| January | £80 | £20 | £100 |
| February | £80 | £20 | £100 |
| March | £80 | £20 | £100 |
| £240 | £60 | £300 |