Daily Mail article on recaiming tax on pension

dillydilly

Article suggests pension contributions made via your company only get 20% refunded to your scheme, individuals on 40% marginal tax rates should be claiming the rest back via tax returns. I've always assumed the full 40% is paid into my pension fund, its never broken down on my pension statement as far as I'm aware. Am I hence due a big rebate? Would this cash have to go into the pension? Am I just a bit naive, or would most higher rate payers who don't fill in returns bre equally surprised? How far back can you claim? Seems a biggie this, yet surprised no mention in Martin's e-mail...

jem16

It depends on the type of pension scheme offered by the company. Many company pension schemes take the contribution from gross salary and tax relief is automatic.

However some schemes, such as group personal pensions, contributions are paid from net pay. In this case the pension provider adds 20% tax relief and the extra 20% is claimed from HMRC by you through your tax return or a change to your tax code. It is not paid into the pension.

What kind of pension scheme do you have and are contributions taken from gross or net salary?

jamesd

Ask the scheme administrator. There's no fixed rule that can tell you the answer.

If it's a salary sacrifice, sometimes called smart, pension then it would be taken care of by deducting it from gross pay before tax and the gross pay itself would be reduced. Group personal pensions can operate in this way as well as the way jem16 described and there's really no way to know without checking or at least asking you questions like those jem16 is asking.

If any tax rebate is due it would be paid to you, by your tax code if that can do it in a reasonable time.

dunstonh

Article suggests pension contributions made via your company only get 20% refunded to your scheme, individuals on 40% marginal tax rates should be claiming the rest back via tax returns.

it depends on type of scheme and the method you use.
e.g. a Personal pension:
If you pay via your payslip and the employer pays the net amount to the pension provider then you claim the higher rate tax via your paye code or tax return. It id deducted after tax/NI on the payslip.

If you pay via your payslip and the employer pays the gross amount then it is deducted before tax and NI on your payslip and you get tax relief at source and pay lower NI.


What type of pension is it? Group personal pension (GPPP), contract in/out money purchase scheme (COMP/CIMP) or defined benefit/final salary scheme?

dillydilly

Its a defined contribution set up using salary sacrifice, so judging by your useful comments above looks like I'm paying from gross salary hence the full 40% is going into the fund. I shall have a word with the administrator tomorrow just in case...

jamesd

Yes, salary sacrifice is easy. No claiming needed. But do check to be sure, it could be something weird in your scheme, unlikely though that is.

Be glad that your employer is doing things in the most efficient way. If you don't know yet, also ask them what's happening to the employer NI saving from salary sacrifice. That varies, some companies keep all of it for the company, some pay it all into the pension, others split it in some way.

Splitting the employer NI is a useful incentive for higher rate tax payers who otherwise have little incentive to use the workplace scheme compared to basic rate, because all they save is the 2% employee NI and tax relief claiming work. For some that can make it better to use a personal pension instead, potentially costing the employer their saving.