The £720 annual pension top-up millions of parents are missing – and how to claim it

Most parents know about child benefit, shared parental leave and maybe even junior ISAs.

But a far less familiar perk – one that offers a guaranteed 25 per cent government boost – is overlooked by millions of families.

Nearly two-thirds (63 per cent) of parents are unaware that they can pay into a non-earning partner’s pension during parental leave, says Octopus Money, triggering up to £720 a year in automatic top-up from the government.

The rule is simple, the benefit is significant…and yet take-up remains extremely low – another example of wider pension underuse by Brits.

Here we look at how the non-earner pension allowance works, why it is so frequently overlooked, and who stands to gain the most.

How the non-earner pension top-up works

Anyone who is a UK tax resident can receive up to £3,600 a year (gross) into a pension, even if they have no earnings at all.

To use the allowance, a partner or family member pays £2,880 into the pension. The provider then claims £720 in basic-rate tax relief from HMRC, bringing the total contribution to £3,600. There’s no paperwork or tax return required.

This makes the allowance particularly valuable for:

One caveat is that if a higher or additional-rate taxpayer makes the payment on behalf of a partner or child, they cannot claim the extra rate relief normally available on their own pension contributions.

Why families so often miss out

Awareness remains the biggest issue around the perk. “Many simply aren’t aware that pension contributions can be made for someone who isn’t earning, and that this triggers tax relief,” says Gary Smith, senior partner in financial planning at Evelyn Partners.

“That is the main reason the allowance isn’t used.”

Parents may also lack spare cash at a time when childcare, mortgage repayments and rising household costs take priority. Grandparents tend to be more active users of the allowance because they often have greater financial capacity and prefer the strict access rules attached to pensions compared with junior ISAs, which can be accessed at 18.

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But the long-term advantage of the uplift is substantial. Smith says: “If someone has £1,000 and pays it into an ISA, £1,000 is invested. If they pay it into a pension, £1,250 is invested. That immediate 25 per cent uplift can lead to a far higher value when the capital is eventually needed.”

How much it’s worth and why compound growth matters

This is where early planning pays off: compounding supercharges in your favour when timelines are long.

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Smith notes that families often use the allowance for children or grandchildren because of the time horizon involved.

“To illustrate the power of early saving and compound returns,” he says, “if you contributed the full £240 a month (£2,880 a year, which becomes £3,600 with tax relief) from birth into a pension growing at five per cent net of fees, the pot would be worth around £105,200 by age 18. If you then stopped paying in and left it invested to age 57, it could reach about £736,400.”

“That’s a massive retirement headstart at the cost of just £51,840 in personal contributions,” he adds.

Considerations and how to start

Before setting up a partner contribution, families should weigh up a few factors:

The simplest method to start is to open a personal pension online or top up an existing one in the non-earner’s name.

Processing of tax relief can take several weeks. Some pension providers invest the net contribution immediately and add the relief when it arrives, while others wait until the HMRC payment has been received – which typically takes six to eight weeks.

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Although the allowance is designed for non-earners of any age, Smith says it is typically used for grandchildren, with contributions for a stay-at-home parent the next most common scenario.

Should contributions be invested or left in cash?

“Due to the tax relief uplift, most will seek to invest the contributions rather than retain them in cash, especially for time horizons of more than five years,” says Smith.

For savers planning to access their pot within three years, retaining some or all of it in cash may be more suitable.

A simple rule of thumb is that if your household income allows it, and one partner has little or no earnings this year, paying £2,880 to secure a guaranteed £720 top-up may be one of the most efficient retirement moves a family can make.

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