Third-party pension contributions explained

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

Key insights on third-party pension contributions

Third-party pension contributions can help clients boost retirement savings. They follow the same rules as personal contributions, but there are important aspects advisers need to understand, especially around tax relief and limits.

Third-party contributions boost pension savings

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

Family support is the most common source

Most third-party contributions come from individuals supporting family members, including:

• spouses or partners contributing to each other’s pensions; or
• parents or grandparents paying into a child’s pension.

Tax relief goes to the pension member

Contributions are treated as if the member paid them. Basic rate relief is added under relief at source, and higher or additional rate taxpayers must claim extra relief themselves – not the contributor.

Contribution limits match personal rules

Combined personal and third-party contributions can be up to 100% of the member’s relevant UK earnings in the tax year. All contributions count towards the annual allowance.

Non-earners can still receive contributions

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 is often used for Junior SIPPs or pensions for non-working spouses./p>

Your next steps

• Check total contributions against annual allowance and earnings.
• Confirm tax relief claims for higher-rate clients.
• Consider Junior SIPPs for children or pensions for non-working spouses.

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.