Am I supposed to reclaim some tax?

Delta_1984

Hi All,

I'm trying to educate myself and have got muddled - wondering whether any of you can set me straight!

I currently have a DB and also contribute into a DC via salary sacrifice each month. It's something I set up a couple of years ago when I got a pay rise to try to be sensible but didn't really know what I was doing other than it seemed sensible to save in a pension rather than spend! I am a higher rate tax payer.

My DC contribution is X% of my pensionable pay = £139.6 pm
In my pension scheme's account online they report this as a payment of £111.68, with tax relief of £27.92 per month = £139.6

So the total into the pension = the amount taken, and £27.92 = 20% of £139.6 - does this mean it has only had 20% tax relief and I'm supposed to claim the rest via a tax return?

I'm confused because it's salary sacrifice, so in my head I have effectively saved the 40% by virtue of the fact it would have been taxed at that rate - but the pension website states 20% tax relief only?

Thanks for any pointers!

Linton

As your pension payments are by salary sacrifice you are not taxed on them in the first place and so do not get any tax rebate.  The SS is treated as the employer contribution.

Say your gross income was £60K with zero pension contributions and so would be charged higher rate tax on about £10K of that income.  However you decide to pay £20K pension by salary sacrifice.  Your income now becomes £40K and so you just pay basic rate tax on that amount and your employer contributes £20K.  

Delta_1984

Thanks @Linton - that makes perfect sense. Any ideas why the pension provider writes down the tax relief as 20% of the amount sacrificed? 

MallyGirl

Are you sure that it is salary sacrifice - there are other options for pension contributions.

Delta_1984

MallyGirl said:

Are you sure that it is salary sacrifice - there are other options for pension contributions.

Yes, the pension website says 'you are taking part in a salary sacrifice arrangement, you have given up some of your salary in exchange for your employer making payments into your pension plan'

Linton

Delta_1984 said:

MallyGirl said:

Are you sure that it is salary sacrifice - there are other options for pension contributions.

Yes, the pension website says 'you are taking part in a salary sacrifice arrangement, you have given up some of your salary in exchange for your employer making payments into your pension plan'

I suggest that you discuss the online data with your payroll or pensions people.  At a guess it is some form of computer error, perhaps the online system has not been updated to handle SS.  Or is it possible that the DB pension is SS whereas the DC one isnt?