Pension contributions calculation

MPH80

So - I've been paying into a group personal pension with my company for many years and have always been able to work out how much I was going to pay in reasonably easily with the formula:

monthly income * (percentage contribution * (100 - lower tax rate%))
e.g.
1000 * (7% * 80%) = £56 pm.

This amount would then be topped up by the pension company for the tax rebate due to bring it to the £70.

My wife recently started work and is paying into an pension where the contribution is taken out before tax - and I thought I'd worked out how this was going to work. Apparently I was wrong - not on the amount that was to be taken - but on the amount taken in AVC and the amount in terms of tax reduction. For simplicity - I'll put the actual figures:

Basic pay: £1421.88
Tax code: 603L/1
Tax: £163.80
Pension AVC: £71.09
Pension "Lower": £28.44

We had set her AVC at 7% of her income - so the £99.53 total pension contrib looks right to me - but I don't get how the tax bit is £28.44 and I can't make any calcuations come right on this figure.

Perhaps my lack of understanding of how this works is my problem here since I'm used to the post-tax deductions of my personal group pension.

From what I've read - it says "on an occupational pension (which is what I think this is!)- your tax liability is lowered by £20 for every £100 you contribute" which makes sense - but I don't get how we get to £28.44 which is 28% of the total contribution.

Very confused and googling for pension contribution calculator and searching for 'tax' on here hasn't helped me - so I'm hoping one of you good people might be able to aid me!

M.

ffacoffipawb

MPH80 wrote: »

So - I've been paying into a group personal pension with my company for many years and have always been able to work out how much I was going to pay in reasonably easily with the formula:

This amount would then be topped up by the pension company for the tax rebate due to bring it to the £70.

My wife recently started work and is paying into an pension where the contribution is taken out before tax - and I thought I'd worked out how this was going to work. Apparently I was wrong - not on the amount that was to be taken - but on the amount taken in AVC and the amount in terms of tax reduction. For simplicity - I'll put the actual figures:

We had set her AVC at 7% of her income - so the £99.53 total pension contrib looks right to me - but I don't get how the tax bit is £28.44 and I can't make any calcuations come right on this figure.

Perhaps my lack of understanding of how this works is my problem here since I'm used to the post-tax deductions of my personal group pension.

From what I've read - it says "on an occupational pension (which is what I think this is!)- your tax liability is lowered by £20 for every £100 you contribute" which makes sense - but I don't get how we get to £28.44 which is 28% of the total contribution.

Very confused and googling for pension contribution calculator and searching for 'tax' on here hasn't helped me - so I'm hoping one of you good people might be able to aid me!

M.

Is the 7% contribution made up of 5% AVC on top of a normal contribution of 2%, since 5% of £1,421.88 is £71.09 and 2% of £1,421.88 is £28.44?

jem16

MPH80 wrote: »

From what I've read - it says "on an occupational pension (which is what I think this is!)- your tax liability is lowered by £20 for every £100 you contribute" which makes sense - but I don't get how we get to £28.44 which is 28% of the total contribution.

My understanding is that Pension "Lower" is your wife's normal pension contribution, i.e 2%, and nothing to do with tax.

In a company pension taken gross, your tax is reduced. On a pay of £1421.88 your wife would have paid £183.88 in tax. Instead she only paid £163.97.

So from the figures you quote, your wife is paying a total of 7% of her wages into the pension with 5% being AVCs and 2% being her normal contribution.

MPH80

You are both stars and I'm feeling like a moron for not spotting that ... I got so caught up in expecting a tax element - I couldn't see the wood for the trees!

Thanks again both.