Ask Money: where do I stand on paying savings into a pension?

Aegons Steven Cameron helps a reader with a tax-related query.

October 2, 2019

I retired a few years ago and immediately started drawing a defined benefit pension. My only forms of income now are the pension, company dividends and savings interest. When I came to fill out my tax return using the HMRC website, I wondered if it might be advantageous to invest my savings into a new pension. 

Playing with the tax return form, it showed I could reduce my tax liability. However, it seems you can only use “relevant earnings” to be able to get tax relief. Pension payments, dividends and savings are not relevant earnings. I’m not getting any other monies.

Therefore I’m puzzled why the HMRC’s online tax return reduces my tax liability if I declare I’ve made pension contributions. Can you help me understand what the rules are?
Graham McMahon, Surrey.

Steven Cameron, pensions director at Aegon comments: Generally, people are allowed to pay contributions of the higher of their ‘net relevant earnings’ or £3,600 into a pension, and qualify for tax relief. So even if an individual has no net relevant earnings, they can pay pension contributions inclusive of tax relief of up to £3,600, which for a basic-rate taxpayer means a ‘net’ contribution of £2,880. There are no specific rules around where these contributions come from, although the government has made it clear that it doesn’t approve of individuals taking tax-free cash from their pension and then paying it back into a pension to get another round of tax relief.

If you need help with a tax, pension or financial planning problem, please email:

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