The money paid out is usually taxable, including state pensions. With an occupational pension your employer deducts your pension contributions from your pay and then works out the tax on what's left.

With personal and stakeholder pensions contributions are paid net. This means that you hand over the amount that is due after basic-rate tax relief. The pension company claims the tax relief from the government. Higher-rate taxpayers can claim higher-rate relief.

Contributions to pensions schemes qualify for tax relief at the top rate of tax. Currently there are limits as to how much you can contribute.

Carrying back contributions

You can opt to have contributions to a personal pension or stakeholder pension paid after the end of one tax year treated as if made in the previous tax year. You get tax relief at the rate for the previous tax year. You must tell your tax office if you intend to do this and the pension company when you make the payment.