Pension Contributions
Discussion
I wanted to increase my pension contribution percentage for the next tax year, so I did some calculations to increase the percentage to a level where my net pay was comfortable and jumped on the portal to see how the pot was doing
Looking at the current contributions, which match my payslip, they are about half what I thought
I thought the Company were paying 3% and I was paying 5%, I assumed of gross earnings, which is why I wanted to increase
Response from payroll is
"Further to your query regarding pension contributions, we can confirm that the contributions are correct.
Because the pension scheme is a “Net of BR tax” scheme, the auto enrollment thresholds apply. This means that the first £512 (the lower earnings threshold) would have been excluded.
The upper earnings threshold was £4167 per month, so any earnings over this would also be excluded. This leaves a pensionable pay figure of £3655 per month.
This figure is then used to calculate pension contributions at 4% (£146.20) and the remaining contribution of 1% (tax relief) is claimed directly from HMRC by the pension provider and added to your pension fund.
Because the pension contribution is a net deduction, it does not reduce the taxable pay, thus the tax amount payable is calculated in the normal way on the full gross pay.
Hope this helps to clarify for you."
Well, not really! Seems the deductions (contributions) are only made on the basic rate tax bit of my earnings, Is that correct?
Looking at the current contributions, which match my payslip, they are about half what I thought
I thought the Company were paying 3% and I was paying 5%, I assumed of gross earnings, which is why I wanted to increase
Response from payroll is
"Further to your query regarding pension contributions, we can confirm that the contributions are correct.
Because the pension scheme is a “Net of BR tax” scheme, the auto enrollment thresholds apply. This means that the first £512 (the lower earnings threshold) would have been excluded.
The upper earnings threshold was £4167 per month, so any earnings over this would also be excluded. This leaves a pensionable pay figure of £3655 per month.
This figure is then used to calculate pension contributions at 4% (£146.20) and the remaining contribution of 1% (tax relief) is claimed directly from HMRC by the pension provider and added to your pension fund.
Because the pension contribution is a net deduction, it does not reduce the taxable pay, thus the tax amount payable is calculated in the normal way on the full gross pay.
Hope this helps to clarify for you."
Well, not really! Seems the deductions (contributions) are only made on the basic rate tax bit of my earnings, Is that correct?
It looks about right for a scheme based on qualifying earnings:
https://www.pensionsadvisoryservice.org.uk/about-p...
https://www.pensionsadvisoryservice.org.uk/about-p...
Jasey_ said:
If you are a higher rate tax payer you should claim back the additional 25% from HMRC (Either in your tax return or call them up and they can adjust your tax code).
If you register for access to your Personal Tax Account, you can just send them a message via that of what your annual (employee) pension contributions were - you want the gross value added to your pension after the tax relief is applied. If you do this as soon as you get your P60 they'll include the contributions in your annual P800 tax calculation and you'll get the money in your bank account a few days after you request it online. If you wait until after you receive your P800 to tell them, you'll have to wait for them to produce a revised P800 before tou can apply for a refund which will delay things a few weeks.
You don't need to complete a Self Assessment Tax Return for this, of course you may do so for other reasons.
quinny100 said:
If you register for access to your Personal Tax Account, you can just send them a message via that of what your annual (employee) pension contributions were - you want the gross value added to your pension after the tax relief is applied.
What evidence do HMRC need for this? Do you need an annual statement from the pensions company? How is the money then returned, is it paid straight into the pension in question or returned to you individually? I wasn't aware you could claim pension allowances without filling in an entire self assessment.
I changed jobs last year and found myself confused by the new pension scheme which I think is the same as the OP's. I used to get 6% employer cons and pay 10% myself, which was literally 6% and 10% of my gross salary.
In the new role it's 3% employer cons but it's never worked out to equal that amount. I queried it and got the answer that 'it's based on earnings after the qualifying £520 per month or £120 per week has been deducted from the gross wage, this is capped at £842 per week or £3,647 per month' - which I just find confusing and seems like it's not actually 3% employer cons then.
I'm a basic rate tax payer by salary but higher with commission. I've been doing 30% personal cons in some cases, does that mean I won't have benefited from the savings in my gross salary?
Do I just wait until I get my P60 to work out if I need to do a self assessment (I've never had to do one before). Also, will it confuse the situation that I had the old scheme in the current financial year, was furloughed, then made redundant, out of work for a month and then started on this new scheme? How do I even work out what is the correct amount if any tax to reclaim?
Sorry for the thread hijack but sounds like a similar confusing scheme to the op's.
Also, why do employers do it this way than what I would say is the 'normal' way?
In the new role it's 3% employer cons but it's never worked out to equal that amount. I queried it and got the answer that 'it's based on earnings after the qualifying £520 per month or £120 per week has been deducted from the gross wage, this is capped at £842 per week or £3,647 per month' - which I just find confusing and seems like it's not actually 3% employer cons then.
I'm a basic rate tax payer by salary but higher with commission. I've been doing 30% personal cons in some cases, does that mean I won't have benefited from the savings in my gross salary?
Do I just wait until I get my P60 to work out if I need to do a self assessment (I've never had to do one before). Also, will it confuse the situation that I had the old scheme in the current financial year, was furloughed, then made redundant, out of work for a month and then started on this new scheme? How do I even work out what is the correct amount if any tax to reclaim?
Sorry for the thread hijack but sounds like a similar confusing scheme to the op's.
Also, why do employers do it this way than what I would say is the 'normal' way?
alistair1234 said:
I changed jobs last year and found myself confused by the new pension scheme which I think is the same as the OP's. I used to get 6% employer cons and pay 10% myself, which was literally 6% and 10% of my gross salary.
In the new role it's 3% employer cons but it's never worked out to equal that amount. I queried it and got the answer that 'it's based on earnings after the qualifying £520 per month or £120 per week has been deducted from the gross wage, this is capped at £842 per week or £3,647 per month' - which I just find confusing and seems like it's not actually 3% employer cons then.
I'm a basic rate tax payer by salary but higher with commission. I've been doing 30% personal cons in some cases, does that mean I won't have benefited from the savings in my gross salary?
Do I just wait until I get my P60 to work out if I need to do a self assessment (I've never had to do one before). Also, will it confuse the situation that I had the old scheme in the current financial year, was furloughed, then made redundant, out of work for a month and then started on this new scheme? How do I even work out what is the correct amount if any tax to reclaim?
Sorry for the thread hijack but sounds like a similar confusing scheme to the op's.
Also, why do employers do it this way than what I would say is the 'normal' way?
Can anyone advise?In the new role it's 3% employer cons but it's never worked out to equal that amount. I queried it and got the answer that 'it's based on earnings after the qualifying £520 per month or £120 per week has been deducted from the gross wage, this is capped at £842 per week or £3,647 per month' - which I just find confusing and seems like it's not actually 3% employer cons then.
I'm a basic rate tax payer by salary but higher with commission. I've been doing 30% personal cons in some cases, does that mean I won't have benefited from the savings in my gross salary?
Do I just wait until I get my P60 to work out if I need to do a self assessment (I've never had to do one before). Also, will it confuse the situation that I had the old scheme in the current financial year, was furloughed, then made redundant, out of work for a month and then started on this new scheme? How do I even work out what is the correct amount if any tax to reclaim?
Sorry for the thread hijack but sounds like a similar confusing scheme to the op's.
Also, why do employers do it this way than what I would say is the 'normal' way?
Sounds like your new scheme is qualifying earnings, same as the OP, most likely because if Auto Enrolment, alot of employers are only offering this because they have too now.
Your previous company may of had a decent pension scheme in place prior to AE which wasn't based on qualifying earnings.
Remember you can opt out and invest yourself but you will lose your Employers contribution so do some sums and work out what's better for you.
Your previous company may of had a decent pension scheme in place prior to AE which wasn't based on qualifying earnings.
Remember you can opt out and invest yourself but you will lose your Employers contribution so do some sums and work out what's better for you.
Jasey_ said:
Condi said:
quinny100 said:
If you register for access to your Personal Tax Account, you can just send them a message via that of what your annual (employee) pension contributions were - you want the gross value added to your pension after the tax relief is applied.
What evidence do HMRC need for this? Do you need an annual statement from the pensions company? How is the money then returned, is it paid straight into the pension in question or returned to you individually? I wasn't aware you could claim pension allowances without filling in an entire self assessment.
Edited by quinny100 on Saturday 27th March 20:37
Big_Dan said:
Response from payroll is
"Further to your query regarding pension contributions, we can confirm that the contributions are correct.
Because the pension scheme is a “Net of BR tax” scheme, the auto enrollment thresholds apply. This means that the first £512 (the lower earnings threshold) would have been excluded.
The upper earnings threshold was £4167 per month, so any earnings over this would also be excluded. This leaves a pensionable pay figure of £3655 per month.
This figure is then used to calculate pension contributions at 4% (£146.20) and the remaining contribution of 1% (tax relief) is claimed directly from HMRC by the pension provider and added to your pension fund.
Because the pension contribution is a net deduction, it does not reduce the taxable pay, thus the tax amount payable is calculated in the normal way on the full gross pay.
Hope this helps to clarify for you."
Your HR department is being disingenuous, it has nothing to do with how the contribution is taken, i.e. 'Net of BR tax', it is simply that under auto-enrolment rules the minimum an employer has to pay is 3% above LEL and below UEL, with a total of 8% (of that figure) being contributed, and they have chosen to offer you the bare minimum. "Further to your query regarding pension contributions, we can confirm that the contributions are correct.
Because the pension scheme is a “Net of BR tax” scheme, the auto enrollment thresholds apply. This means that the first £512 (the lower earnings threshold) would have been excluded.
The upper earnings threshold was £4167 per month, so any earnings over this would also be excluded. This leaves a pensionable pay figure of £3655 per month.
This figure is then used to calculate pension contributions at 4% (£146.20) and the remaining contribution of 1% (tax relief) is claimed directly from HMRC by the pension provider and added to your pension fund.
Because the pension contribution is a net deduction, it does not reduce the taxable pay, thus the tax amount payable is calculated in the normal way on the full gross pay.
Hope this helps to clarify for you."
My SO has a relief at source (RAS) arrangement (contributions taken from net pay) and the employer pays their 3% based on the entire salary.
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