Tax relief on pensions contributions

talkshy

I am really confused about the tax relief on an extra pension that I am paying into. I am a teacher and pay into the teachers pension scheme but also 3 years ago I got an additional pension which pays out when I am 60 but my employer doesnt pay into it (on my pay slip it says additional contributions)

Both my pension contributions are taken before tax and according to my pay office and a lady I spoke to at the tax office I do not pay any tax on the contributions! I do not really understand this as surley I must do somewhare along the line.

My actual yearly wage is usually just under the 40% tax bracket so I would have thought that I would get 20% tax relief. However I also have a pension that I get paid from a previous job which is about £13000 a year. I am on a BR code for this pension and pay 40%.

To be honset I have litle confidence in HMRC to be able to work out what tax relief I should be getting on my pension and as you can see I do not have much understanding on the subject.

Anyone help?

molerat

Is your tax code on the pension BR or D0 ? D0 deducts 40% tax, BR deducts 20% tax.

You do not get "tax relief" as such and there is nothing for HMRC to calculate, you do not pay tax on the pension contribution amount as it is deducted from your pay before the tax is calculated. Tax complications only come where you pay into a pension yourself outside of the PAYE system. Your tax will be simply calculated on your teaching pay after pension deduction + your pension - tax allowance.

Paul_Herring

talkshy wrote: »

Both my pension contributions are taken before tax and according to my pay office and a lady I spoke to at the tax office I do not pay any tax on the contributions! I do not really understand this as surley I must do somewhare along the line.

You've described salary sacrifice whereby your gross pay is reduced by the amount of your contribution, so income tax and national insurance is calculated on what remains, and your contribution enters your pension fund untaxed by either, so there is no 'relief' to claim, simply because it wasn't taxed in the first place.

You'll be taxed on it when you start withdrawing from the pension in retirement (subject to the usual rules about tax free allowances and any TFLS you take out.)

You only get relief on any contributions you make out of taxed income (and even then you can only claim back income tax paid on the amount, you don't get the national insurance back.)

craig1912

Paul_Herring wrote: »

You've described salary sacrifice

not necesssarily- It could just be a standard arrangement as all company scheme pension contributions are taken before tax is calculated, salary sacrifice or not.

Paul_Herring

craig1912 wrote: »

not necesssarily- It could just be a standard arrangement as all company scheme pension contributions are taken before tax is calculated, salary sacrifice or not.

What are some of these other schemes of deducting pay before the tax calculations called if not salary sacrifice? (Disclude the likes of 'salary exchange' since that's simply an alternative name for those who are squeamish about using the word 'sacrifice.')

xylophone

I imagine that the OP is contributing to TPS and to a TPS AVC scheme.

https://www.pru.co.uk/pdf/TAVK0789.pdf

Your total payments to this AVC, the main Teachers’
Pension Scheme, including top-up options, and any other
pension arrangement is subject to maximum tax relief on your
contributions of up to 100% of your salary.
Payments are deducted from your salary and passed to Prudential
to be invested into your plan...........

AVC contributions are deducted from your salary before tax and
passed to Prudential for investment. This means if you normally
pay tax you’ll qualify for immediate tax relief on your payments.

In other words, "net pay" rather than "relief at source". See http://www.scottishwidows.co.uk/Extranet/Literature/Doc/FP0491

xylophone

My actual yearly wage is usually just under the 40% tax bracket so I would have thought that I would get 20% tax relief. However I also have a pension that I get paid from a previous job which is about £13000 a year. I am on a BR code for this pension and pay 40%. I am on a BR code for this pension and pay 40%.

BR indicates 20% rather than 40%.

You contribute to a Prudential AVC? See post above.

Have you registered for sight of your personal tax account?

https://www.gov.uk/personal-tax-account

craig1912

Paul_Herring wrote: »

What are some of these other schemes of deducting pay before the tax calculations called if not salary sacrifice? (Disclude the likes of 'salary exchange' since that's simply an alternative name for those who are squeamish about using the word 'sacrifice.')

Straightforward deduction from salary of pension contributions is not salary sacrifice.
https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

Salary sacrifice (my company calls it Salary Exchange but it's the same thing) entails a change in the employment contract and is beneficial to most (not all employees) as it saves both employee and employer NI.
Instead of contributions being deducted from salary each month, your salary is reduced by an amount equal to your pension contribution rate, Your company then pays that reduction to the provider together with their own contribution.

Paul_Herring

craig1912 wrote: »

Straightforward deduction from salary of pension contributions is not salary sacrifice.

Straightforward deduction from salary happens after tax has been deducted, and the income tax part of it reclaimed when deposited into a pension fund, no?

But I'm willing to concede there may be another pension contribution method that deducts pension contributions before the national insurance calculation happens that isn't some flavour of salary sacrifice that I can't immediate think of or have never heard of.

Got a link for one of them?

molerat

No.

My pension payments were deducted from the gross pay on my pay slip, the gross pay being subject to NI, and the "taxable pay" on both my pay slips and P60 showed as that reduced amount. When we moved to salary sacrifice my gross pay reduced as the pension amount was paid by the company and not me, this lower gross pay meant a lower NI deduction.

Nowhere in the OP is there any mention of reduced NI, correctly so as normal pension payments from gross pay do not attract an NI reduction.

jem16

Paul_Herring wrote: »

But I'm willing to concede there may be another pension contribution method that deducts pension contributions before the national insurance calculation happens that isn't some flavour of salary sacrifice that I can't immediate think of or have never heard of.

Got a link for one of them?

The Teachers' scheme, as with all Public Sector schemes, operates on a Net Pay arrangement ( as xylophone linked to earlier )whereby pension contributions are deducted before tax is calculated. However NI is still taken on the full gross amount unlike salary sacrifice schemes where NI is also reduced by the amount of pension payment.