Martin Lewis has highlighted a little-known pension rule that allows non-taxpayers to contribute up to £2,880 a year into a private pension and receive tax relief, effectively boosting their savings to £3,600. The consumer champion explained the rule on his BBC podcast, urging savers to act sooner rather than later.
How the allowance works
The financial expert said: 'There is a rule that says you can contribute £3,600 to a pension even for a non taxpayer, or the non taxpayer can do it themselves, and they still get relief. So you can put £2,880 a year into a pension. The relief will come in - in a private pension - which will mean they actually have £3,600 saved on the back of putting £2,880 in.'
This applies to anyone not paying tax, such as those out of work or with no income. The 20% tax relief is claimed by the pension provider and added to the pot, so only £2,880 needs to be paid in to reach the full £3,600 contribution.
Who can benefit
Mr Lewis explained several situations where this allowance can be used: '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.'
The rule also applies to adults who are not taxpayers, providing a simple way to build retirement savings even without earned income.
Start early for maximum benefit
The question came from a 23-year-old worker starting their first job after university. Mr Lewis commended them for thinking about pensions early and stressed the importance of starting contributions as soon as possible. He said: 'It's really important, because the earlier you start putting money into a pension, the reason it's beneficial, is you'll have it in an investment. That investment can compound over so many years.'
He shared rough figures to illustrate the impact: '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.'
