Pension on Secondary Employment

FudgeHouse

Current positon :

Two historic pension pots, based on previous employments :

'Pension A' with a value of c£500K

'Pension B' with a value of c£40K

Actively saving in to workplace pension 'Pension C' with a current value of around £5K

Have a secondary P/T employment generating around £500 per month, this is taxed at 40%, but is not sufficent to generate NI contributions.

This secondary employment has recently launched auto enrollment, but as I earn less then the auto enrolment criteria I have to tell them if I want to join up. Contribution rates are 3% employee and 3% employer (rising to 5% employer in April).

Question - If I join the pension from my Part Time employer will it effectivelly cost me nothing as contributions will come off before tax, or will I only save 40% of the contributions (so each £1 contributed will only cost me £0.60) ? :think:

xylophone

Does the part time employer use "net pay" or "relief at source"?

https://www.nowpensions.com/help-centre/gateway/employee/general-information-gateway-help-centre/whats-the-difference-between-net-pay-and-relief-at-source

FudgeHouse

Thanks, I had to check - It’s on a Net Tax basis.

My understanding of this is that I will take a hit on my take home pay from this secondary employment (by whatever percentage I choose), but HMRC then adds 20% to the pension in tax relief.

As I’m a higher rate tax payer on the whole of this employment I believe I can claim the remaining 20% in my annual tax return - Is this added to the pension or returned to me as a tax refund ?

xylophone

This?

https://thepeoplespension.co.uk/help/knowledgebase/are-the-contributions-paid-net-or-gross/

Net tax basis (deducting contributions after tax)

Net tax basis is the default tax relief method with The People’s Pension. So we’ll automatically set you up on this arrangement when you sign up to The People’s Pension. HMRC call it ‘relief at source’.

Under this tax basis you’d deduct employee contributions from their pay after tax is taken. (That’s why we call this tax basis net.)
Then, The People’s Pension claims the tax relief – at the basic 20% rate of tax – from the government.
And it’s then added to your employee’s pension savings – even for any employees who don’t pay tax.
And any higher or additional rate taxpayers will need to claim the extra tax relief direct from HMRC through their tax returns.

FudgeHouse

Thanks - I guess will be the same, but not that Pension Provider .

Having read that paragraph I’m none the wiser if the 20% claimed back through the tax return ends up in the pension pot, or is just refunded to me as a tax refund ?

xylophone

If you are claiming higher rate relief through HMRC, it does not end up in the pension pot.

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

https://forums.moneysavingexpert.com/discussion/5651971/sipp-with-40-tax-relief-how-to-claim

Contact HMRC.