Pension payment confusion
Discussion
My brain is scrambled now after multiple calls to my workplace pension provider and HMRC, so I’m hoping someone here can help clear this up.
I’m a basic rate tax payer and pay into a workplace pension on a salary sacrifice/ exchange scheme through my employer, I’m a standard PAYE employee. I would like to make a large one off payment into my pension pot, the money is outside of payroll and comes from other savings. I would still be under the £60,000 threshold for the year in total contributions + one off payment.
The question is on tax relief for the one off payment - how do I get it? I have had different answers from the pension provider, the last person I spoke to was adamant that the 20% relief wouldn’t be added automatically to the pension pot and I’d need to call HMRC. They then told me HMRC would give me the tax relief via a new tax code and the money wouldn’t be added to the pension pot. My employer doesn’t have a clue and just redirects me to pension provider.
I called HMRC and asked what to do when I make this payment. It was like I was speaking a different language, the representative was more confused than me. Googling suggests a SIPP but I don’t want two pension pots, with two sets of fees and admin. This just seems way over complicated for quite a simple task surely?
Any help would be appreciated in clearing up what to do. To confirm I haven’t sent the money over yet, I like to check beforehand.
I’m a basic rate tax payer and pay into a workplace pension on a salary sacrifice/ exchange scheme through my employer, I’m a standard PAYE employee. I would like to make a large one off payment into my pension pot, the money is outside of payroll and comes from other savings. I would still be under the £60,000 threshold for the year in total contributions + one off payment.
The question is on tax relief for the one off payment - how do I get it? I have had different answers from the pension provider, the last person I spoke to was adamant that the 20% relief wouldn’t be added automatically to the pension pot and I’d need to call HMRC. They then told me HMRC would give me the tax relief via a new tax code and the money wouldn’t be added to the pension pot. My employer doesn’t have a clue and just redirects me to pension provider.
I called HMRC and asked what to do when I make this payment. It was like I was speaking a different language, the representative was more confused than me. Googling suggests a SIPP but I don’t want two pension pots, with two sets of fees and admin. This just seems way over complicated for quite a simple task surely?
Any help would be appreciated in clearing up what to do. To confirm I haven’t sent the money over yet, I like to check beforehand.
When I've done this in the past, the 20% tax relief is added when you contribute to the pension pot.
Therefore, if you wanted to add £10k to your pension, you only need to pay in £8k, and the pension provider will sort it so that £10k appears.
Gets a little more complex if you're a higher-rate taxpayer, and I just sorted that through my tax return.
Shouldn't have any impact on your PAYE tax code in your case, I don't think.
Therefore, if you wanted to add £10k to your pension, you only need to pay in £8k, and the pension provider will sort it so that £10k appears.
Gets a little more complex if you're a higher-rate taxpayer, and I just sorted that through my tax return.
Shouldn't have any impact on your PAYE tax code in your case, I don't think.
It depends if the scheme is "net pay" or "Relief at Source"
Net pay schemes - your employer deducts your pension contribution before tax and send it over to the pension provider. they do not reclaim any additional tax.
Relief at source - your contribution comes out after tax/NI has been deducted. the pension provider reclaims 20% tax. If you're a 40%/45% taxpayer you reclaim 20%/25% from HMRC via your self assessment return.
It sounds like you're in a net pay scheme and the provider isn't flexible enough to reclaim the 20% tax.
Net pay schemes - your employer deducts your pension contribution before tax and send it over to the pension provider. they do not reclaim any additional tax.
Relief at source - your contribution comes out after tax/NI has been deducted. the pension provider reclaims 20% tax. If you're a 40%/45% taxpayer you reclaim 20%/25% from HMRC via your self assessment return.
It sounds like you're in a net pay scheme and the provider isn't flexible enough to reclaim the 20% tax.
Thank you for the replies. I sent over £100 as a test payment to see and called the provider again just now. They confirmed that I will not be receiving tax relief automatically as they only do that for personal pensions and not workplace pension schemes. Been directed back to HMRC. What a faff this is
RacingStripes said:
When i put the lump in my pension they automatically added 20%.
This has been my experience with multiple providers as well - i.e. you pay the lump in yourself, and some weeks later, the additional 20% (basic rate bit) also appears in the pot. i.e. the pension platform does the admin to claim the 20% relief from the government.Perhaps there was some confusion over the difference with the higher rate relief - Am I surprised that the employer can't easily explain it? -- probably not, there are very few in either HR or finance that seem to actually understand these things
(Here, my experience has been that you either have to complete the tax return or tell HMRC up front to adjust it along the way but it's a pretty standard thing to do.)
Chainedtomatos said:
Thank you for the replies. I sent over £100 as a test payment to see and called the provider again just now. They confirmed that I will not be receiving tax relief automatically as they only do that for personal pensions and not workplace pension schemes. Been directed back to HMRC. What a faff this is
So you will be able to claim £25 back on your self assessment. Bit of a pain your pension provider doesnt do it when alot do.Might be easier just to open up a SIPP with AJB or II or whatnot.
Also don't worry about the 60k limit unless you're hitting it every year, as you'll have carry forward allowance if not hitting it every year for the past three years.
edit another way if you can adjust salary sacrifice monthly, is what i do, and thats lower your net pay by increasing salsac by the amount you want to deposit by end of financial year, and use the savings that you would have pushed net into the pension to make up the salary shortfall if needed. You might find you end up with the addiitonal pension contribution and most of the savings left by YE.
Also don't worry about the 60k limit unless you're hitting it every year, as you'll have carry forward allowance if not hitting it every year for the past three years.
edit another way if you can adjust salary sacrifice monthly, is what i do, and thats lower your net pay by increasing salsac by the amount you want to deposit by end of financial year, and use the savings that you would have pushed net into the pension to make up the salary shortfall if needed. You might find you end up with the addiitonal pension contribution and most of the savings left by YE.
Edited by bmwmike on Friday 16th January 13:03
I don't understand how HMRC could "code" you for that much tax relief in what remains of 2025/26.
I would just make the contribution (assuming the scheme rules allow it), see how it's handled by the provider and then if necesary do a Self Assessment tax return after the end of the year. One way or another you'll get your tax relief.
If you have cash flow concerns you could delay a chunk of the contribution until after 6th April.
As others have said, you should have sufficient "earnings" to enable the contribution.
P.S. I hope you've been maxing your ISAs or at least given that some thought before taking this step.
I would just make the contribution (assuming the scheme rules allow it), see how it's handled by the provider and then if necesary do a Self Assessment tax return after the end of the year. One way or another you'll get your tax relief.
If you have cash flow concerns you could delay a chunk of the contribution until after 6th April.
As others have said, you should have sufficient "earnings" to enable the contribution.
P.S. I hope you've been maxing your ISAs or at least given that some thought before taking this step.
Chainedtomatos said:
Thank you for the replies. I sent over £100 as a test payment to see and called the provider again just now. They confirmed that I will not be receiving tax relief automatically as they only do that for personal pensions and not workplace pension schemes. Been directed back to HMRC. What a faff this is
Open up a SIPP (ii/AJ Bell/VAnguard/HL) & pay into - get tax relief. Transfer back in to work plan if they will accept transfers.Note £60k is the maximum - you have to have earned that much. If you only earned £50k you can't pay £60k in. I presume the salsac amount has to be deducted as well.
Thanks for the help, yes ISA allowance has been used for current tax year and got it ready for April aswell for S&S ISA. I was stupid when I was younger and didn’t contribute to my pension enough, so trying to correct this now with a ‘top up’. Changed away from the default fund to maximise growth (25+ years till retirement)
Looking like a Vanguard SIPP, paying in lump sum to get the 20% relief and then transfer out to my workplace provider, no fees on either end of the transfer according to both providers, so happy days on that.
Looking like a Vanguard SIPP, paying in lump sum to get the 20% relief and then transfer out to my workplace provider, no fees on either end of the transfer according to both providers, so happy days on that.
OP, have you asked your employer to see if you can pay your additional contribution via salary sacrifice? That way you get the tax (and NI) relief automatically. I know you said you wanted to pay in a large lump sum but if you can do it this is the way forward via payroll. My son does this with his bonus as a one off.
Edited by Somebody on Friday 16th January 13:38
Chainedtomatos said:
Thanks for the help, yes ISA allowance has been used for current tax year and got it ready for April aswell for S&S ISA. I was stupid when I was younger and didn t contribute to my pension enough, so trying to correct this now with a top up . Changed away from the default fund to maximise growth (25+ years till retirement)
Looking like a Vanguard SIPP, paying in lump sum to get the 20% relief and then transfer out to my workplace provider, no fees on either end of the transfer according to both providers, so happy days on that.
I know you said you want everything in one place but just make sure the workplace pension is performing well before you transfer the SIPP back into it. You might find it's performing relatively poorly & you could be better off picking a well-performing Vanguard fund & leaving it here. Looking like a Vanguard SIPP, paying in lump sum to get the 20% relief and then transfer out to my workplace provider, no fees on either end of the transfer according to both providers, so happy days on that.
RacingStripes said:
Im with Aviva.
When i put the lump in my pension they automatically added 20%.
Edit: they actually add 25% of the net amount you add in. As that then works out as 20% of the total (net+tax relief).
Yes, people need to know you need to get 25% added, not 20%. When i put the lump in my pension they automatically added 20%.
Edit: they actually add 25% of the net amount you add in. As that then works out as 20% of the total (net+tax relief).
Edited by RacingStripes on Friday 16th January 12:01
Earn £100, receive £80 after 20% tax, pay the £80 into your pension, adding 20% only gives you £96. They need to add 25% to get back to the original £100.
rhlshrm2430 said:
If it s a one-off payment outside payroll, it won t work like salary sacrifice - you usually pay it net and HMRC gives the 20% back via your tax code or refund, not into the pot. Feels messy, but that s just how it is unless you run it through payroll.
Apart from everyone above that says their pension supplier does it.Its also worth doing it via salary sacrifice when you can though as you'll also save the National Insurance.
Chainedtomatos said:
Thanks for the help, yes ISA allowance has been used for current tax year and got it ready for April aswell for S&S ISA. I was stupid when I was younger and didn t contribute to my pension enough, so trying to correct this now with a top up . Changed away from the default fund to maximise growth (25+ years till retirement)
Looking like a Vanguard SIPP, paying in lump sum to get the 20% relief and then transfer out to my workplace provider, no fees on either end of the transfer according to both providers, so happy days on that.
It may be worth considering keeping the SIPP separately from the workplace pension. Unless there are significant enhancements given, which is unlikely with an overpayment like this, it’s very likely that you will be able to get better growth that will outstrip any costs. Looking like a Vanguard SIPP, paying in lump sum to get the 20% relief and then transfer out to my workplace provider, no fees on either end of the transfer according to both providers, so happy days on that.
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