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I don't understand any of it..

edited 30 November -1 at 1:00AM in Auto-enrolment
2 replies 3.7K views
Kitty777Kitty777 Forumite
447 posts
I've been Money Tipped!
edited 30 November -1 at 1:00AM in Auto-enrolment
Hello all.

From this month I am putting into a private pension, as part of the auto enrollment scheme.

However I am mega confused as to what is pensionable pay, and the tax relief element and just how much I will pay...I have lost the original letter that I got from my employer (M&S) but I got a letter from legal and general today to say that

I pay 3%
M&S pay 3%
The goverment pay 3%.

But then it mentions something about me paying less due to tax relief...does anyone know any good sites to work out just how much I will be paying? I am not good with this sort of thing at the best of times and I am now just mega confused :(

thanks!

Replies

  • Paul_HerringPaul_Herring Forumite
    7.5K posts
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
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    http://www.thepensionsregulator.gov.uk/automatic-enrolment-earnings-threshold.aspx

    Pensionable earnings: Earnings above a certain (lower - £112p/w 2015/6) figure and below a certain (higher - £815p/w 2015/6) figure.

    Employers are only required to contribute based on amounts earned between those two figures. e.g. if you earn £220p/w, the amount the percentages will be based on will be £108 (£220 amount - £112 lower limit.)

    Better employers will contribute based on the whole amount. (The whole £220 in the example above.)

    http://www.thepensionsregulator.gov.uk/working-out-your-clients-costs.aspx

    The minimum contributions for 2015/6 are 1% from employer, 1% from employee. Better employers may increase their percentage (possibly requiring a likewise increase from the employee.)

    So, for the minimum requirements using the figures above:

    Wage: £220
    Pensionable earnings: £108
    Employer contribution: 1% of £108 = £1.08 (coming from the company pot)
    Employee contribution: 1% of £108 = £1.08 (coming from the employee's gross pay.)

    So each week, your gross pay is effectively reduced by £1.08, your employer adds £1.08, and so £2.16 goes into your pension fund.

    http://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/automatic-enrolment/how-much-do-i-and-my-employer-have-to-pay

    Since your contribution effectively comes out of your gross pay, if your contribution actually comes out of your net pay (after you've paid 20% income tax) you only have to contribute the remaining 80% and the government will repay the 20% on that back:

    Your actual contribution: £1.08 x 80% = £0.86(4) out of net pay
    Government's tax relief: £1.08 x 20% = £0.21(6) refund
    Total into pot: £1.08

    I pay 3%
    M&S pay 3%
    The goverment pay 3%.

    The first two I can understand (M&S will pay in more to your pot, if you do.)

    I'm not sure about the 3% on that third line however....


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    Note that this board doesn't get much traffic, you may be better off reposting on the main pension board if this hasn't helped...
  • I believe the M&S scheme works with you paying 2.4% (topped up to 3% with tax relief) and M&S paying 6%.


    As for the pensionable pay, it's probably best to ask your payroll department what counts as pensionable pay
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