GPP Contributions - How are they calculated

Maynard1

I have been part of a GPP since Feb 08 and having recently received my 3rd annual statement, I am now somewhat confused as to how my contributions are being calculated.

First of all, I am contributing 3% of my salary to the scheme and this is being matched by my employer.

However, my understanding is that the monthly contribution is calculated as 3% of my net income, on which I receive tax relief at 20%.

For the sake of keeping the maths simple, if my Gross income was £1000, Tax £200 and N.I. £100, my net income would be £700 and my monthly contribution would be £21 on which I would recieve tax relief of £5.25, making my gross contribution £26.25.

Q. If my employer is mathcing my 3% contribution, should they be contributing £21 or £26.25?

Secondly, I receive a basic salary plus a variable monthly bonus, depending on level of sales achieved.

If my Gross monthly income equates to £1200 (£1000 basic + £200 bonus), should my contribution change each month, taking the variable bonus into account and subsequently, should the employers contribution also change?

Finally, with a GPP, who is responsible for determining what level of my income is used for the purpose calculating my contributions? If this is my employer, are they allowed to change this without my knowledge? i.e Could they have decided that during the first year to include my bonus in my pensionable salary and to not include the bonus during the 2nd year onwards?

Any advice would be most appreciated.

Note: I have already spoken to the pension provider and pension advisory service, who have both adviced that I take this up with my employer in the first instance. I would like some degree of clarity before I approach either my employer or the pension administrator.

Thankyou,
Sean.

Damask

OK dokey... I don't know how to quote different bits... so I'll just cover it off one thing at a time.

Calculating your contribution

If your gross pensionable pay is £1000, then 3% of this is £30. Less basic rate tax makes this £24. You should see a £24 contribution being deducted from your bottom line. The pension company will add back the £6 income tax. National insurance doesn't come into the equation.

Your employers contribution

Is the straight £30.

Bonuses, overtime, etc

All depend on how your agreement with your employer is worded. What you'll find is that there's a definition of pensionable salary. This can be made up of a combination of basic salary with or without adding in bonuses, overtime, etc. Sometimes it can even include things which don't directly impact upon your salary such as company cars, etc (the P11D benefits). There can even be a deduction put in to tie it in with the basic state pension.


Your pension provider and TPAS are both correct in telling you to ask your employer first.

Loughton_Monkey

I have never heard of a Group Pension scheme in which employee contributions relate to "Net" salary.

You should check this out with your employer. It is usually X% of your "Gross Pensionable Salary" - which typically would be your base salary but not bonus/commission [although this really depends upon your contract].

Similarly, the employers contribution is typically Y% of the same 'Gross Pensionable Salary'.

Now on the example you quote, where salary for the period is £1,000, then there could be two possibilities. Either the arrangement is that your 3% is meant to be 'net of tax relief', in which case they would deduct £30 and you would see £37.50 added to your pension value. Or the arrangement is that your 3% is 'gross' in which case I would expect to see £24 deducted from your salary, but £30 added to your pension value.

But there may be some 'quirk' in your own scheme. How can we tell? The usual, and most obvious solution to this type of problem is usually "ask your employer". I strongly suggest you do that.

Maynard1

Thank you to you both for your replies.

Could you confirm, am I right concluding from your reply that N.I should not be included in any aspect of calculating contributions? i.e. Where currently, my employer is deducting tax and N.I from my gross and then calculating 3% of the net, this is incorrect?

Thanks again,
Sean.

Damask

It would be extremely unusual to include NI in the calculations... but it all comes down to that definition of pensionable salary. If there's an NI deduction built into that then they may be correct.

The best people to speak to would be the HR team at your employer and get a hold of their definition.