Increasing contributions as a higher rate tax payer

alcachofa

I've never really paid much attention to my pension and feel silly for not doing so. Trying to sort it out now to be the best option for me.

My employer's pension scheme is bare minimum auto-enrolment. I'd never quite grasped how the tax-relief side of pensions work so rather than increasing my contributions, I've just been saving from my salary. Now (I think) I understand it and am going to boost my contributions.

Work has told me that as a higher tax payer I'll need to claim the extra tax relief. The guide on this site (Can't post links, but its at MSE/savings/discount-pensions/) very briefly mentions this but without much detail ("However if you don't reclaim, it won't be paid. Therefore it is important to check if you are in a higher tax bracket. For more information on how to reclaim tax, see HMRC")

Most of the details in that HMRC link are very much aimed at people who file their own tax returns (which I don't). And then it just says I can call/write to them.

Having spent ages on the phone to HMRC before, only to discover I didn't have all the necessary details, I'm keen to approach this a bit more clued up.

Am I right in thinking that to claim the tax relief on my increased pension contributions all I have to do is phone HMRC with:
- Tax code
- What my pension contribution was
- What my pension contribution will be
- And when it changed.

No forms or anything? Seems almost too easy...

Dazed_and_confused

Your check list isn't quite right but firstly you have missed a very important step.

What type of pension contribution are you talking about?

In your situation there are usually three possibilities and with two you get the maximum possible tax relief up front so there is nothing to tell HMRC and nothing to claim back.

The potentials are

Net pay

Relief at source

Salary sacrifice (there is no pension tax relief on this one, you are giving up salary in return for your employer contributing to the pension. You save tax by not having the income to pay tax on in the first place)

xylophone

Your auto enrolment scheme is definitely "relief at source"?

Not all are - for example, NOW pensions operates "net pay".

https://www.moneyadviceservice.org.uk/en/articles/tax-relief-and-your-workplace-pension

If your scheme does operate RAS and you are a higher rate tax payer, then you will indeed need to contact HMRC concerning tax relief - see here for example

https://www.nestpensions.org.uk/schemeweb/memberhelpcentre/contributions/if-i-need-to-claim-tax-relief.html

https://www.aegon.co.uk/support/faq/pension-technical/claiming-tax-relief-pp-faq.html

alcachofa

I'll admit I'm not sure. I assume asking my employer is the only way to find out for sure.


I don't think its salary sacrifice - my payslip has Employee Pension Contribution as a deduction, and my Year To Date bits have distinct entries for Pension Employer and Pension Employee.



Given that my employer specifically told me I'd need to claim my tax relief, I'm assuming its relief at source. But I'll check.

Dazed_and_confused

With all due respect to your employer they are not pension or tax experts.

Can you post some more details from a recent payslip.

Pay for the week/month
Taxable pay for the week/month
NIC'ble pay for the week/month
Employee pension contribution

alcachofa

Sure.


Pay for the week/month 6333.33
Taxable pay for the week/month 6333.33
NIC'ble pay for the week/month (that's not a thing I have on my payslip, it only splits Taxable and NonTaxable)
Employee pension contribution 146.20

Dazed_and_confused

It's looking like relief at source. Where you would need to claim any additional tax relief due from HMRC.

You don't get an extra 20/21%, the gross contribution (your payment plus basic rate tax relief added by the pension company) increases the amount of basic rate tax you can pay. Which in turn can reduce any higher rate tax payable.

In simple cases, which yours probably is if the £6333 isn't a one off, this can work out to you saving an extra 20/21%.

Next step is to check your pension account to make sure the pension company are addicting the basic rate tax relief i.e. your £146.20 is grossed up to £182.75.

If that is the case then let HMRC know. To get the most accurate possible tax code revision you should let them know how much you expect to earn from this job this tax year i.e. what your P60 will show your pay as.

And how much you expect to pay in pension contributions in the current tax year. Making sure it is crystal clear if you are giving a net or gross amount.

They usually use this year's pension contribution as an estimate for next year (2020:21) so let them know if you think this will be different.

If you were earning at that level in previous years you may be due a refund.

Albermarle

so rather than increasing my contributions, I've just been saving from my salary.

If you want to you could pay a lump sum from the money you have saved into your workplace pension . Normally this is allowed and you pay it direct to the pensions provider and no need to involve your employer . Do you have direct access to the pension providers website ? If not you should get it anyway to have a look at how the investments are doing.
The lump sum will automatically attract 20% tax relief ( same as with your regular contributions ) which the pension provider will add as usual, and you will need to claim back the HRT as per above posts . Two points to note :
1) You can not claim back more HRT than you actually pay .
2) As already mentioned when you make the claim , HNRC assume you will make the same level of contributions the following tax year and adjust your tax code accordingly .