Can foster carers pay into more than one pension?

Having more than one pension can be appropriate for a foster carer, particularly where you have a workplace pension from another job alongside a personal pension. Each scheme remains separate, but the contributions made to all of them must be considered together when checking tax relief and pension contribution limits.

Common combinations include:

• a workplace pension through employment outside fostering and a personal pension;
• an older workplace pension and a new workplace pension after changing employment;
• a personal pension alongside a self-invested personal pension, where this is suitable and the provider accepts the arrangement; or
• a pension built up through employment together with entitlement to the State Pension, which is separate from private pension savings.

Fostering itself does not usually create an employer pension in the same way as ordinary employment. Whether you can pay fostering income into a pension, and whether that income qualifies for tax relief, depends on how your fostering payments are treated for tax and whether you have other relevant earnings. Foster carers should check this with a pension provider or regulated financial adviser rather than assuming that every payment received through fostering can be used for tax-relieved contributions.

Tax relief is assessed across your arrangements. Paying into several pensions does not give you a separate tax-relief allowance for each one. Contributions to personal pensions may receive tax relief at source, while workplace pension contributions may be dealt with through payroll. Employer contributions, where applicable, are also relevant when assessing the total amount going into your pensions.

If you have little or no relevant earnings, a pension provider can explain whether contributions can still be made with basic tax relief under the rules for people with limited earnings. The amount that can receive tax relief may be different from the amount you are technically able to pay into a pension, so ask the provider to confirm the gross contribution and any tax treatment before setting up regular payments.

Keep the following limits and circumstances in mind:

• The annual allowance applies across your pension schemes, rather than separately to each pension.
• Unused allowance from earlier tax years may sometimes be available under carry-forward rules, subject to the relevant conditions.
• If you have started taking taxable income from a defined contribution pension, a reduced allowance may apply to some future contributions.
• Contributing above the available allowance can create an unexpected tax charge, even where each individual provider has accepted the payment.
• Tax rules can change, so the position should be checked for the tax year in which the contributions are made.

Before opening another pension, compare its charges, investment choices, flexibility, administration and retirement options with those of your existing schemes. Several pensions can provide useful flexibility, but having more accounts also means more paperwork and makes it easier to lose track of contributions, nominated beneficiaries and charges. Consolidating pensions is not automatically better: older schemes may contain valuable guarantees or terms that could be lost on transfer.

A practical approach is to make a list of every pension, including the provider, scheme type, current value, regular contributions, employer contributions and any benefits already being taken. Ask each provider for up-to-date information and keep evidence of payments. If you are unsure how your fostering income interacts with pension tax relief, obtain guidance from an appropriately regulated adviser who understands both pension rules and the tax position of foster carers.