Third-party pension contributions explained

As part of our Bitesize Technical series, Senior Technical Consultant Joshua Croft explains the rules around third-party contributions, including:

• who can pay into your client’s pension;
• who receives tax relief on the contribution;
• how much can be contributed; and
• whether contributions can be made for non-earners.

Watch the bitesize video now, or scroll down to read through the key talking points.

Key insights on third-party pension contributions

What is a third-party pension contribution?

A third-party pension contribution is a payment made by someone other than the scheme member or their employer. This is usually another individual, but it could theoretically be a company or any other legal entity.

Who would make a third-party contribution?

In practice, most third-party pension contributions are made by individuals on behalf of their family members. Typically, this involves someone contributing to their spouse or partner's pension, or a parent or grandparent contributing to a child's pension.

Who receives tax relief on the contribution?

When someone else contributes to a client’s SIPP, it is treated in the same way as if the client had contributed themselves. This means the client gets basic rate tax relief in the pension under relief at source, and if they are a higher or additional rate taxpayer, then it is the client who should claim the extra relief, not the individual who made the contribution.

What are the limits on third-party contributions?

The same limits apply to third-party contributions as for personal contributions. So, the maximum total personal and third-party contributions combined is up to 100% of the member’s relevant UK earnings in the tax year the contribution is made. Any contribution will also count towards the member’s annual allowance.

Can contributions be made for non-earners?

If the pension member has no earnings, then third-party contributions can still be made up to a total of £2,880 net / £3,600 gross in each tax year. This amount is commonly paid into a Junior SIPP by parents or grandparents, or into a pension for a non-working spouse.

More Bitesize Technical

Personal pension contributions

Learn more about the factors to consider when planning personal pension contributions for your clients. Watch the video here.