Tax Relief on NEST pension contributions

westbridgfordguy

Am a bit confused and was looking for feedback please, I queried last months payslip with payroll last week as my net income had gone down by about £35 from the previous 11 months payments. I noticed that my monthly pension contributions had been added to my gross salary for last month therefore the amount of tax I paid had gone up proportionally.

When I queried this with payroll they said this was correct and my previous 11 monthly pension payments should have been included as a gross earning so I had got away with paying less tax then I should for the previous 11 months.

I thought that pension contributions were tax free so why are they being included as part of my gross salary and therefore being included to be taxed at 20% or have I totally misunderstood this?

Dox

Tax relief on pensions can be given in one of two ways: either the contribution is taken from your gross pay (which reduces the amount on which you have to pay tax), or the contribution is taken from your taxed pay (in which case the provider claims tax relief at the basic rate on your behalf and pays it into your pension 'pot' with them. Higher rate taxpayers may be able to claim further relief through their tax return). NEST operates on the latter principle (known as 'relief at source'), so what you're being told is correct.

More info: https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/tax-relief-and-contributions

westbridgfordguy

Dox wrote: »

Tax relief on pensions can be given in one of two ways: either the contribution is taken from your gross pay (which reduces the amount on which you have to pay tax), or the contribution is taken from your taxed pay (in which case the provider claims tax relief at the basic rate on your behalf and pays it into your pension 'pot' with them. Higher rate taxpayers may be able to claim further relief through their tax return). NEST operates on the latter principle (known as 'relief at source'), so what you're being told is correct.

More info: https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/tax-relief-and-contributions

Thanks for the reply. If I understand what you're saying correctly then the amount of "extra" tax I will get deducted from my monthly salary relating to my pension contributions will get automatically added to my pension pot?

Dox

westbridgfordguy wrote: »

Thanks for the reply. If I understand what you're saying correctly then the amount of "extra" tax I will get deducted from my monthly salary relating to my pension contributions will get automatically added to my pension pot?

Yes - you effectively 'get your tax back' !