Pension tax deductions

little-spender

hi All

Wondering if anybody could give me a little bit of advice as totally lost on this one

Anyway.s Personal pension contributions gets taken out of my wages, I pay tax on ALL of my income.

workplace is changing it so that the pension contributions come off and we get tax releif on this portion , (as at the moment there is no tax relief on the pension portion)..

What i want to know is , is there any disadvantage to doing this , as a few peeps in higher up positions are opting out and staying with the old way, which if I am right would give them lesser income

Anybody any pointers for me- I do not think anything to do with the pensions change.

jem16

little-spender wrote: »

hi All

Wondering if anybody could give me a little bit of advice as totally lost on this one

Anyway.s Personal pension contributions gets taken out of my wages, I pay tax on ALL of my income.

So presumably your contribution then receives the basic rate tax relief via the pension provider. For example for every £80 you pay in, the provider adds 320 to make it up to 3100.

workplace is changing it so that the pension contributions come off and we get tax releif on this portion , (as at the moment there is no tax relief on the pension portion)..

So to clarify, pension contributions will now be made from gross salary and you will then be taxed on what is left? So you will pay less tax?

What i want to know is , is there any disadvantage to doing this , as a few peeps in higher up positions are opting out and staying with the old way, which if I am right would give them lesser income

It can very much depend on how much they pay and how their contributions will be handled from now on. Will they pay in exactly the same amount as before?

Anybody any pointers for me- I do not think anything to do with the pensions change.

Perhaps supply some figures and it would be clearer.

Your_Hero

little-spender wrote: »

hi All

Wondering if anybody could give me a little bit of advice as totally lost on this one

Anyway.s Personal pension contributions gets taken out of my wages, I pay tax on ALL of my income.

workplace is changing it so that the pension contributions come off and we get tax releif on this portion , (as at the moment there is no tax relief on the pension portion)..

What i want to know is , is there any disadvantage to doing this , as a few peeps in higher up positions are opting out and staying with the old way, which if I am right would give them lesser income

Anybody any pointers for me- I do not think anything to do with the pensions change.

It sounds like a salary sacrifice arrangement that is changing but this is quite vague from your post.

Normally this "old" arrangement (where payments comes out from your gross salary) can be beneficial and the extent of this depends on your earnings. The usual benefits include less NI paid by both you and employer, lower income tax bracket, "tax relief" is claimed at source (beneficial if you are a higher rate or additional rate payer).

But also the potential downsides are that your salary is lower which may affect any death in service benefits (life cover from employer), future pay rises (linked to base salary), lower income for mortgage purposes (bad), state benefits.

The employer should have provided you with a guide showing how this may affect you and who is likely to benefit from which arrangement (usually determined by level of income).

Not sure what's prompted this but is the employer contribution changing with the new arrangement? You need to weigh up all the pros and cons and do what's right for you (don't just follow the crowd).

jamesd

There's always tax relief on the pension contributions, so I'm wondering how there is none. If the pension contributions are taken from after-tax pay, typically the tax relief would be added to the amount paid into the pension pot by the pension company when it receives the money or when it gets the tax relief money from HMRC a month or so later.

If work changes this to a salary sacrifice scheme, sometimes called smart pensions, all that has to change is that instead of the pension company adding the tax relief, your employer never deducts the income tax and national insurance and the pension company no longer reclaims the tax relief from HMRC.

Salary sacrifice pensions tend to be a very good idea and the cases in which they are not are quite specific to individual circumstances. Things like death in service benefits and pay rises are normally linked to your "scheme salary", which is the salary you would have had before the pension salary sacrifice.

Paying the same final value into a pension by salary sacrifice costs less than not using salary sacrifice so you could probably borrow more for a mortgage than before. Previously, though, some mortgage lenders might have ignored part of the pension contributions when working out affordability. Today they are required to take account of them however they are made, hence the increase in what you could borrow now vs the decrease you'd have had before.

However, your description just isn't clear enough about the types of pensions involved to be sure that this description is correct.