Martin Lewis has highlighted a little-known pension contribution rule that could add £720 to your retirement savings each year. The money expert discussed the allowance on his BBC podcast after a 23-year-old worker inquired about how much to contribute to a private pension.
How the Rule Works
Lewis explained that even non-taxpayers, such as children or unemployed adults, can contribute up to £3,600 a year to a private pension. They only need to deposit £2,880 themselves, as the government adds 20% tax relief, amounting to £720, which the pension provider claims. “You can put £2,880 a year into a pension. The relief will come in… which will mean they actually have £3,600 saved,” Lewis said.
Who Can Benefit
Lewis outlined several scenarios for using this allowance. “You can do that for a child, you can do that for a baby. Grandparents can do it, parents can do it, aunties and uncles can do it. It’s often a great way for grandparents to put money away for their grandchildren and be remembered,” he stated.
Why Starting Early Matters
The original query came from a 23-year-old recent graduate starting their first job. Lewis praised their early planning, emphasizing the power of compound growth: “For every £1 you put in in your early 20s, you’re going to have to put in £30 in your 50s to get the same result. It’s so worthwhile doing it early when you’ve got disposable income.”
This rule offers a significant boost for families looking to build long-term savings for loved ones, leveraging government tax relief to maximize contributions.
