Aviva Pension - "You don't get tax relief on contributions that your employer makes"

ratechaser

Albermarle said:

Thank you for this clarity, so if on salary sacrifice the tax relief is already applied before i'm paid?

Your salary is reduced by the amount of pension contributions you make , so you never pay tax on them in the first place , that is why no further tax relief is added. Also you make some gains by paying less National Insurance contributions , as your salary is effectively lower. 

This reduction in salary is then added to by your employer with their contributions, and the whole amount appears in your pension as 'employer contributions'.  If you check your pension it will show just one payment per month from your employer .

If it shows two payments , one from employee  and one from  employer , then they are not operating a salary sacrifice arrangement.

Don't think that last comment is correct - I am on a sacrifice arrangement, however I get a pension input breakdown which breaks the monthly contributions into 3 components, the amount I've sacrificed, the 'core' employer contribution, and the 'matching' employer contribution.

So strictly speaking it may all count as employer contributions, but your pension administrators platform may give you a more granular view. 

Barney_Rubble_0403

...I currently am being paid via PAYE through a recruiter and not directly from the company I work for as am on a fixed term contract....

If this is the case then your employer is the recruitment agency and not the end client. Unlikely that will apply salary sacrifice.

Most common method is for the employee pension to be subject to tax and the pension provider claims it back from HMRC and applies it to your pension fund. Employer contributions are not taxable. 

You might be signed up with one of the auto-rnrolement companies such as Nest or through the your agencies own pension provider. Either way you should have received some sort of paperwork and able to view your pension pot online.  

ffacoffipawb

My old Aviva pension was sal sacrifice and all payments show, correctly, as employer contributions. No split is provided between what they pay, what I sacrificed and the part employer NI saving they add but the numbers add up when checked in my own spreadsheet. Before anyone asks the value is low compared to the contributions as i did a partial transfer of most of it to AJ Bell which has a wider spread of investments.

Malthusian

ratechaser said:

Albermarle said:

Thank you for this clarity, so if on salary sacrifice the tax relief is already applied before i'm paid?

Your salary is reduced by the amount of pension contributions you make , so you never pay tax on them in the first place , that is why no further tax relief is added. Also you make some gains by paying less National Insurance contributions , as your salary is effectively lower. 

This reduction in salary is then added to by your employer with their contributions, and the whole amount appears in your pension as 'employer contributions'.  If you check your pension it will show just one payment per month from your employer .

If it shows two payments , one from employee  and one from  employer , then they are not operating a salary sacrifice arrangement.

Don't think that last comment is correct - I am on a sacrifice arrangement, however I get a pension input breakdown which breaks the monthly contributions into 3 components, the amount I've sacrificed, the 'core' employer contribution, and the 'matching' employer contribution.

So strictly speaking it may all count as employer contributions, but your pension administrators platform may give you a more granular view. 

It is technically possible for someone to make both employer contributions via salary sacrifice and employee contributions as well, but it would raise the question of why they don't just make the whole lot via salary sacrifice.

However, there are potential answers to this, e.g:

1) increasing the sal sac element would bring the employee below minimum wage (whereas paying part of your minimum wage into a pension is perfectly legal)

2) the employee contributions represent income within the personal allowance, so 20% tax relief at source is better than sal sac which gives NI relief only or nothing at all

3) the employee doesn't want their mortgage affordability to be reduced any further

4) or their eligibility for income protection benefits

So on balance I think Albemarle's comment is incorrect, if only because there are so many potential reasons why an employee might want to make both sal-sac and non-sal-sac pension contributions.

ratechaser

Malthusian said:

ratechaser said:

Albermarle said:

Thank you for this clarity, so if on salary sacrifice the tax relief is already applied before i'm paid?

Your salary is reduced by the amount of pension contributions you make , so you never pay tax on them in the first place , that is why no further tax relief is added. Also you make some gains by paying less National Insurance contributions , as your salary is effectively lower. 

This reduction in salary is then added to by your employer with their contributions, and the whole amount appears in your pension as 'employer contributions'.  If you check your pension it will show just one payment per month from your employer .

If it shows two payments , one from employee  and one from  employer , then they are not operating a salary sacrifice arrangement.

Don't think that last comment is correct - I am on a sacrifice arrangement, however I get a pension input breakdown which breaks the monthly contributions into 3 components, the amount I've sacrificed, the 'core' employer contribution, and the 'matching' employer contribution.

So strictly speaking it may all count as employer contributions, but your pension administrators platform may give you a more granular view. 

It is technically possible for someone to make both employer contributions via salary sacrifice and employee contributions as well, but it would raise the question of why they don't just make the whole lot via salary sacrifice.

However, there are potential answers to this, e.g:

1) increasing the sal sac element would bring the employee below minimum wage (whereas paying part of your minimum wage into a pension is perfectly legal)

2) the employee contributions represent income within the personal allowance, so 20% tax relief at source is better than sal sac which gives NI relief only or nothing at all

3) the employee doesn't want their mortgage affordability to be reduced any further

4) or their eligibility for income protection benefits

So on balance I think Albemarle's comment is incorrect, if only because there are so many potential reasons why an employee might want to make both sal-sac and non-sal-sac pension contributions.

Not going to disagree with any of that, but I think it's tangential to the point I was making, which is that some administrators platforms (Wills Towers Watson in my case) provide a convenient breakdown of what is still ultimately all 'employer' contribution . Useful in my case because our scheme flexes the 'true' employer input amount depending on what I choose to sacrifice from my salary. So I can easily see the effect of any changes that I make - and I can make changes month on month if I want.

As regards how my salary is represented, I still have a 'reference salary' that is at pre-sacrifice level, and would be used for things like calculating sick pay, death in service benefits, redundancy payments and so on, but assume that's pretty standard for sal sac schemes.