Simple pension query...

murkins

I know most aren't but it's a catchy thread title

I set up a pension almost five years ago and have been upping my contributions by 5% a year.

Now because I've had a lot (and I mean a lot!) on my mind since then I've only gotten around to thinking about my pension now.

The pension is a personal one set up by me through Nationwide Building Society and managed by Legal and General. My employers have nothing to do with this pension.

However, to get tax benefits from my pension does it need to come out through my salary?

Mine is currently a direct debit from my building society account each month and not from my salary.

Help (please)!

dunstonh

However, to get tax benefits from my pension does it need to come out through my salary?

No.

The pension is a personal one set up by me through Nationwide Building Society and managed by Legal and General.

That will be a pretty basic option. Not the best (by a long way) but not the worst.

jamesd

If you're a basic rate tax payer the basic rate tax relief of 25% of what you pay in yourself will be added automatically, either immediately or in just under a month, when HMRC pays the pension company.

If you're a higher or top rate tax payer you also need to contact HMRC to let them know about your ongoing pension contributions so they can provide the higher rate tax relief.

murkins

Well when the pension started I was a basic rate taxpayer but am now paying the higher rate.

Obviously HMRC know I'm paying the higher rate so will they have automatically adjusted the rate for me? Or will I have to phone them and ask them to do this?

Thanks for the replies so far. I'm going to go read some of the stickies here and any guides I can find on the site...

CLAPTON

murkins wrote: »

Well when the pension started I was a basic rate taxpayer but am now paying the higher rate.

Obviously HMRC know I'm paying the higher rate so will they have automatically adjusted the rate for me? Or will I have to phone them and ask them to do this?

Thanks for the replies so far. I'm going to go read some of the stickies here and any guides I can find on the site...

No, the way it works is that the pension provider claims the basic 20% tax from HMRC for all pensions

if you are a 40% payer then you need to claim the other 20% direct from HMRC

RichandJ

Well done for:

A) paying in, then taking an interest - read as much as you possibly can;

actually taking notice of what experienced posters on here are saying.

Does your employer provide any kind of pension arrangement ? You might be missing out on their contributions, which could potentially double yours.

You need to do a bit of research on possible employer provision then come back & ppl will be able to help further.

dtsazza

murkins wrote: »

Obviously HMRC know I'm paying the higher rate so will they have automatically adjusted the rate for me? Or will I have to phone them and ask them to do this?

If you're doing self assessment tax returns, then there's an obvious part of the return where you can enter how much you contributed to pension schemes. This is then taken into account when determining your calculated tax liability and (in the absence of anything else) will result in you being due a refund.

Alternatively if you're not on self assessment, I believe you can send them a letter explaining the situation - "self assessment lite", if you like. Phoning them to ask about the best way to do this would be a good idea.


Note that in both cases, whereas the 25p basic rate tax is reclaimed by the pension company directly into your pension pot, any higher rate rebates go directly to you - not into the pot directly. So a basic rate taxpayer pays £1 into their pension, which becomes £1.25 with the rebate. A higher rate taxpayer pays £1 into their pension, which also becomes £1.25, and then gets 25p sent back to their current account from HMRC.

I mention this because it's often phrased that you can put £1 into your pension as a higher-rate taxpayer and it turns into £1.67. This is the correct ratio - but in order to get this pension balance, you'd need to actually pay £1.33 into the pension (and then receive 33p back as a rebate). If you're just multiplying your contributions by 5/3rds then you'd be saving a little less than you think.

jamesd

As a higher rate tax payer it's vital that you communicate with HMRC about this. You definitely will not be getting higher rate tax relief until you've discussed it with HMRC. HMRC may choose to adjust your tax code to allow for the regular pension payments that you are making.

murkins

Yikes! Looks like I've a lot to do to get this money back! My own fault!

I looked at my employers recently, no pension contributions from them so not missing out on anything there thankfully

jamesd

HMRC will go back a few years, forget how many, maybe three, to pay you. Beyond whatever the limit is, it's lost. Phone is good for this sort of thing, they can tell you what to do to get things done and shocking though it might be I've generally had pleasant experiences on the phone with HMRC.