Understanding pension contributions and tax relief

Cmdr_Bond

I pay into a company pension scheme, it's not brilliant but it is better than a stakeholder pension.

As it stands, I am supposed to pay 3% and the company puts in a further 6%.

My wages are calculated weekly, and my contributions are based on my basic wage.

My basic wage is £10.50/hr over a 39hr week = £409.50 before any additions or deductions.

On my calculations 3% and 6% are £12.29 (£12.285) and £24.57 respectively.

The employer contribution shown on my payslip matches the 6% figure perfectly, however my contribution is only £9.83!

I make that out to be 2.4% (possibly 3% - 20% tax?)

So with all that in mind, can someone explain a few things.

1. Am I right in assuming that my contribution is LESS 20% TAX?
2. If #1 is correct, is £9.83 or £12.29 going into the pension pot?
3. Assuming #1 is correct and only £9.83 is going into the pot, why is the employers contribution also not "taxed"
4. If I am receiving "tax relief" on my contribution, how will it be taxed cone retirement (based on current conditions).
5. Finally, is my contribution deducted before calculating the income tax and/or national insurance on my income?

HappyHarry

1. yes

2. You contribute £9.83 from your net pay, and the pension provider claims back £2.46 from HMRC.

3. Your employer's contributions do not receive tax relief.

4. The first 25% will be tax-free, the remainder will be taxed as income.

5. Your contribution of 3% is calculated before tax and NI.

In practice, you are adding £12.59 to your pension. However, if you did not add anything to your pension, you would receive the £12.59 in your pay packet. This £12.59 would have been taxed, leaving you with £9.83 in take-home pay.

So, the £9.83 is taken from your take-home pay and added to your pension. Then the tax that you paid (on the original £12.59) is reclaimed from HMRC by the pension provider.

Cmdr_Bond

OK.

So effectively 12.29 is going into the pot.

I pay 9.83 out of my net wages and the pension company claim the 2.46 tax that I have already paid to HMRC, from HMRC.

If I decide to start making additional voluntary contributions, will the same tax relief apply? I.e. if I elect to pay an extra 10.00, 8.00 will be deducted from my net pay and the remaining 2.00 reclaimed by the pension company?

Either way, I am assuming then that deductions are calculated based on gross figures but are are adjusted for tax and deducted from net figures.

HappyHarry

If I decide to start making additional voluntary contributions, will the same tax relief apply? I.e. if I elect to pay an extra 10.00, 8.00 will be deducted from my net pay and the remaining 2.00 reclaimed by the pension company?

Yes - that would normally be the way it is done.

Either way, I am assuming then that deductions are calculated based on gross figures but are are adjusted for tax and deducted from net figures.

Yes.

The only reason why it would not be would be if your company was offering to contribute via salary sacrifice. However, your first post with the figures on imply that they do not.