Originally Posted by
Countdown begins
I think it’s to do with tax relief on personal pensions.
Say you earn £55k a year, but want to invest in a personal pension plan, then if you were to pay £5k into such a plan you would get £1k paid into your plan by the government, and you woul get a further £1k back when you file your tax return. You get 40% on that £5 back. It’s a nice way of keeping yourself in the lower tax band, for now.
It’s a good kickback if you can afford it, but you won’t see the 20% that goes into your plan until you start drawing it.
Except it is better than that, for every
4K you put in the gov pay 1K, and you can claim 1K back. (ie 5K gets paid in for a 4 K contribution, 20% tax relief paid by gov 1k and if you are a high rate tax payer you claim back an additional 20%=1K)