Workplace penion tax relief

[EVLATECOMER]

Hi All

I spent some time during furlough looking at how much tax I pay and noticed that my workplace pension seems to be coming from my net pay, not gross.

I double checked this using an online salary calculator for my April payslip, so that I could see a clean month and what I should take home with an without a 5% workplace pension (capped at qualifying earnings)

I used a well known online sal calc site to work out the monthly gross and net and assuming I wasn't in the workplace scheme.

Then the difference in actual take home pay for April vs this result is the exact amount that my pension contribution is; £181.35 or 5% of the monthly ualifying earnings. My employer caps this.

I checked the pension receipts with Aviva using their online account and I'm getting this same amount (plus 3% employer) added to my pension pot but it looks like I'm getting 0% tax relief. There doesn't seem to be any tax relief added at their end, which tbf I didn't expect, but thought I would check.

I'm a 40% tax payer and I'm only paying the minimum 5% as we don't have any other option at work and I had a great DB pension from a previous employer based on a much higher salary for plenty of years, I'm just worried that I'm paying about £181 per month and am losing the 40% tax saving and have been for 3 years.

My employer is an SME and they don't seem overly keen to spend any time researching this for me.

Where do I start with this? I think I'm owed about £72 per month for 3 years by someone.

Could it be as simple as my employer is putting these deductions in wrongly when running payroll (we only have 25 staff) and use an external company to process this for us.

Any suggestions welcomed.

[Scootersp]

Anything is possible, but the bit where you say the payroll is done externally leads me to think that they 'should' be doing it right (provided they get the right info passed to them)as they'll have (presumably) multiple clients.

Perhaps your company can give you their contact details as if it's farmed out it's because no one in your company has the time/knowledge to really help/tell you.

The third party should definitely be able to verify/explain things.

[RobXjcoupe]

You sound like you need to be paying via a salary sacrifice pension scheme then the pension payments are deducted before you are taxed

[LeoSayer]

RobXjcoupe said:

You sound like you need to be paying via a salary sacrifice pension scheme then the pension payments are deducted before you are taxed

Pension payment should be deducted before income tax regardless of whether you do salary sacrifice or not.

The only practical difference SS makes is that you and the company don't pay NI on contributions.

[Countdown]

If you’re paying 5% it sounds like a stakeholder scheme rather than an Employer scheme. When these are set up they can be set to take contributions from Gross pay OR net pay.

If it’s the former then you get automatic tax relief (as the deduction is taken pre-tax). If it’s set up as Net Pay your pension provider should be recovering the tax from HMRC at year end (and you would see this on the annual pension statement you get from the Pension provider).

I worked in one place where the HR dept thought the tax was recovered by the Pension Provider and the PP thought it was a gross pay scheme. It was a ball ache to sort out.

HTH

[Welshbeef]

SS is not the best option if your going for a mortgage and wanting to borrow the most as it’s based on basic salary

[Countdown]

You need to raise it with your HR Department. they should liaise with the Payroll provider and with the stakeholder pension scheme to identify who is recovering the missing tax.

IF it’s fallen between the cracks then the first thing is for HR to notify the Payroll provider and tell them to change the payroll elements so that it calculates pension contributions BEFORE tax. Then the Payroll provider needs to rework the payrolls going back 4 years and submit revised EPS. If that doesn’t work you might be able to recover it direct from HMRC.

[RobXjcoupe]

LeoSayer said:

RobXjcoupe said:

You sound like you need to be paying via a salary sacrifice pension scheme then the pension payments are deducted before you are taxed

Pension payment should be deducted before income tax regardless of whether you do salary sacrifice or not.

The only practical difference SS makes is that you and the company don't pay NI on contributions.

No. SS pension is only deducted before tax and ni. It’s an option on paye. If not used pension is removed from net pay.

[AndyAudi]

LeoSayer said:

Pension payment should be deducted before income tax regardless of whether you do salary sacrifice or not.

Depends on the scheme, small employers using NEST deduct after tax, & NEST claims it back

[Stay in Bed Instead]

If it's just the minimum recent workplace pension it is very likely that the pension contribution, net of basic rate tax relief, is deducted from net pay. The pension provider will reclaim the basic rate tax relief direct from HMRC. This is known as Relief at Source.

If you pay higher rates of tax you have to claim any additional tax relief annually from HMRC via your annual tax return.

[JulianPH]

Stay in Bed Instead said:

If it's just the minimum recent workplace pension it is very likely that the pension contribution, net of basic rate tax relief, is deducted from net pay. The pension provider will reclaim the basic rate tax relief direct from HMRC. This is known as Relief at Source.

If you pay higher rates of tax you have to claim any additional tax relief annually from HMRC via your annual tax return.

^^^ This!