just in case - Mark Garnier gaffe

SallyG

in case anyone else heard Mark Garnier and wondered...........
http://www.thisismoney.co.uk/money/comment/article-3478101/JEFF-PRESTRIDGE-Pensions-farce-worthy-great-Mr-Ayckbourn-Osborne-drops-plans-cut-tax-relief.html

"Yesterday, Mark Garnier, an influential member of the Treasury Select Committee, said on Radio 4's Today programme that non-taxpayers do not get tax relief on their contributions.
Maybe it was radio nerves but of course he's wrong. Non-taxpayers currently enjoy 20 per cent tax relief on pension contributions."

OldBeanz

To ensure they gain tax relief non-taxpayers have to opt out of their work's pension and open their own. I would assume most do not do this unless they are subsidised by their partner and can afford to do both.

xylophone

To ensure they gain tax relief non-taxpayers have to opt out of their work's pension and open their own.

There is a problem if the scheme operates "Net Pay" but not if it operates "Relief at Source".



Workers can save into a workplace pension which allows them to benefit from an employer contribution and additional tax relief from the government.

But “net pay” arrangements do not have a mechanism for those earning below the income tax threshold, of £10,600, to claim tax relief on their contributions. This is in contrast to “relief at source” arrangements where non-taxpayers receive a 20 per cent top-up to their contributions added straight to their fund.


At the moment, those who meet age criteria, and earn £10,000 or more, are automatically enrolled. But, if they earn less than £10,600, they will not receive the government top-up in some pension arrangements.

With regard to personal pensions which operate relief at source,


A person may invest up to the total of their earnings (before deduction of personal allowance) in a pension scheme but will pay this net of basic rate tax. Where the earnings are £6K, he can make pension contributions of up to £6K gross (£4,800 net) and HMT will add £1,200 to his pension pot and he will pay no tax.

A person may make a net contribution of £2,880 and HMT will add £720, whether or not he has any earnings.

OldBeanz

How many work's pensions offer Relief at Source?

xylophone

How many work's pensions offer Relief at Source?

I've no idea. Presumably some do. I was just pointing out the situation re tax relief. More below for those interested.

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

https://www.moneymarketing.co.uk/pension-tax-relief-reform-will-solve-auto-enrol-net-pay-problem/
https://www.nowpensions.com/help-centre/company/administration/whats-the-difference-between-net-pay-and-relief-at-source

https://www.corporate-adviser.com/altmann-urges-employers-to-opt-for-relief-at-source-schemes/

OldBeanz

Wow some of that makes scary reading "However, NOW: Pensions offers employees who earn less than £18,000 a reduced administration charge. At the moment, this more than offsets the tax relief that these members might be missing out on if they don’t pay tax."
So their cut in charges is equivalent to more than tax relief. One wonders how high the charges are.

woolly_wombat

OldBeanz wrote: »

To ensure they gain tax relief non-taxpayers have to opt out of their work's pension and open their own. I would assume most do not do this unless they are subsidised by their partner and can afford to do both.

LGPS and NHS pension schemes both operate a net pay arrangement. They are still generous schemes and it would, IMHO, be a terrible idea to opt out and pay into a pp instead in order to obtain a 20% top-up.

silvermum

xylophone wrote: »

There is a problem if the scheme operates "Net Pay" but not if it operates "Relief at Source".


At the moment, those who meet age criteria, and earn £10,000 or more, are automatically enrolled. But, if they earn less than £10,600, they will not receive the government top-up in some pension arrangements.

With regard to personal pensions which operate relief at source,

A person may invest up to the total of their earnings (before deduction of personal allowance) in a pension scheme but will pay this net of basic rate tax. Where the earnings are £6K, he can make pension contributions of up to £6K gross (£4,800 net) and HMT will add £1,200 to his pension pot and he will pay no tax.

A person may make a net contribution of £2,880 and HMT will add £720, whether or not he has any earnings.

Xylophone - could you explain this for me?
I work part-time for a family company and last year only took a small annual salary of £7920 on which no tax was deducted at source/PAYE.

I paid 80% of this (£6336) into my SIPP with Interactive Investor and anticipated that I would receive the remaining 20% (i.e. £1584) as tax relief. However when the HMRC payment came through it was only £720 - why is this?
Was this a mistake, or is it because I never paid any tax in the first place to gain 'relief' so I got the mimimum non-taxpayer level of £720 ?

xylophone

Was this a mistake, or is it because I never paid any tax in the first place to gain 'relief' so I got the mimimum non-taxpayer level of £720 ?

http://www.hl.co.uk/pensions/interactive-calculators/tax-relief-calculator?lumpsum=7920&salary=7920

You should contact II and query this.

silvermum

xylophone - thanks for that calculator, that's what I thought.

Yes, I've queried this with II, and as usual, they are taking ages to reply, so I thought I'd research the answer here too.

PensionTech

Did you pay National Insurance contributions on your earnings? If not, it might be that your employer hasn't declared your earnings to HMRC at all, which would be a worry.