2 Pensions: What are the rules regarding tax relief.

Albermarle

singhini said:

I'm a bit confused, did you mean 5% ?

If my employer did agree for my contribution coming from my net pay then the pension provider would try to claim tax relief but that would be wrong as no tax would have been paid (at my monthly wage it makes no difference if its gross or net pay that we use as they are the same i.e. no tax deductions)

Albermarle said:

You should ask your employer if it is possible for you to pay your 3% contribution out of your net/take home pay, as salary sacrifice is a poor system for people not earning enough to pay tax ( as explained above). Probably they will say no, because it will complicate their payroll, but you can ask/make the point anyway.
Or even better if your salary was a little more than £1000 a month and your annual salary was say £13K pa. Then you would be a taxpayer and then salary sacrifice would work for you.

Your questions have already been answered, but to confirm , yes I meant 5%.

Also as you now know how much tax you pay ( or not) is not directly related to how much tax relief you can claim. 
It might seem very generous of the government to give tax relief to non taxpayers, but the amounts involved are small compared to the huge cost of tax relief for higher earners.

You should still ask if your employee contributions ( the 5%) can be taken out of your net pay rather than by salary sacrifice, or ask for a pay rise, so you actually become a taxpayer!

singhini

Albermarle said:

You should still ask if your employee contributions ( the 5%) can be taken out of your net pay rather than by salary sacrifice, or ask for a pay rise, so you actually become a taxpayer!

I will and thankyou for the sound advice. 

I'm not sure how to word this, but can i say to my employer that i would rather have my 5% contribution paid into my SIPP instead of into whatever company scheme they operate and also have his 3% paid into my SIPP aswell ?

Dazed_and_C0nfused

singhini said:

Albermarle said:

You should still ask if your employee contributions ( the 5%) can be taken out of your net pay rather than by salary sacrifice, or ask for a pay rise, so you actually become a taxpayer!

I will and thankyou for the sound advice. 

I'm not sure how to word this, but can i say to my employer that i would rather have my 5% contribution paid into my SIPP instead of into whatever company scheme they operate and also have his 3% paid into my SIPP aswell ?

You can ask but they are highly unlikely to agree.

If every employee could choose their own (company) pension scheme it would be an utter nightmare to administer!

singhini

I've resurrected this thread as i have now had the meeting with my employer and their accountant today regarding being enrolled into the company pension and its created more questions.
In summary there are only 2 employees (me and another lady) who are going to be enrolled into the company pension. The other 2 people in the business are the owners/directors and they have already sorted their pension stuff years ago (i don't know if they are employees, owners, directors so can't say what their arrangements are but by the sounds of it they are NOT in the "company Pension" as there is no official company pension in place yet). FYI i started working back in August last year and the lady started a few months before me. 

It sounds like the company pension is going to be a salary sacrifice scheme. When i asked the accountant can i put the contributions into one of my existing pensions schemes, he said its upto your employers but there's no reason why not (as there are only 2 people going to be enrolled into it). If it was a larger company i would suggest to the company that this might get messy and not to allow it but with only 2 people its not a problem. My director said he didn't have a problem with it either as there is no plans to take anyone on in the next few years and if they did it would be maximum of one person.

During todays conversations my director said that my wages will be going up around June time (though he didn't say what to). I then mentioned to the accountant that my current salary is £1,000 a month and that means i earn above the LEL but below the PT (>£533 but <£1,048 a month), which means i pay no income tax or NI but my NI record will be automatically credited by HMRC as though NI has been paid.
My question to the accountant was that in the event my salary goes up (lets say to £15,000), If i was to put £2,500 salary sacrifice into the pension and keep a take home pay of £12,500 would this effect my automatic NI credits from HMRC as in theory i earn above the Primary Threshold of £1,048 (£15,000/12 months) or do HMRC still credit me with NI as they look at take home pay i.e. £12,500 / 12 months = £1,041.66p which is still below the Primary Threshold? (i could not work out what he was saying as he didn't commit to a firm yes or no answer).
Does anyone know the answer to this question please? 

Dazed_and_C0nfused

Earning above the LEL and your employer reporting your earnings to HMRC are what matters.

Not sure why you think earning more would be an issue 🤔

xylophone

https://startups.co.uk/people/pensions/best-auto-enrolment-pension-providers/

Could your employer not choose a simple AE pension with relief at source?

Let's say that the only income of a person  aged under age 75 was a part time salary of £12,570.


He makes a personal contribution of £960 per annum  from his net income to a workplace RAS scheme.

The provider would claim relief of  £240 per annum and add it to his pot.

Thus the total gross contribution for the year would be £1,200.

If he wished, he could then make a net contribution of up to £11,370 per annum to his SIPP and the provider would claim tax relief of up to £2,274 and add it to his pot.

Pat38493

Dazed_and_C0nfused said:

Earning above the LEL and your employer reporting your earnings to HMRC are what matters.

Not sure why you think earning more would be an issue 🤔

Maybe the question is around whether you could salary sacrifice yourself out of NI credits.  I guess if you are part time this could happen but based on the figures mentioned it would still be above the LEL so it should be fine?

xylophone

And see 

https://forums.moneysavingexpert.com/discussion/comment/79972735/#Comment_79972735

Employer contributions do not need to be deducted from the tax relief limit. 

Employee contributions might need deducting depending on how they were taken.

If RAS, then they will need deducting.

If salary sacrifice, they won't (as they are technically employer contributions)

singhini

Pat38493 said:

Dazed_and_C0nfused said:

Earning above the LEL and your employer reporting your earnings to HMRC are what matters.

Not sure why you think earning more would be an issue 🤔

Maybe the question is around whether you could salary sacrifice yourself out of NI credits.  I guess if you are part time this could happen but based on the figures mentioned it would still be above the LEL so it should be fine?

Yes i think that's what I'm saying. 
If i earn £15,000 annually and salary sacrifice £2,500 into a pension then i'm left with £12,500 which is above the LEL but below the PT so i should be fine to receive NI credits from HMRC. 

However, i'm unsure if HMRC might approach this differently by saying you earn £15,000 which is above the PT yet you knowingly put £2,500 into a pension to avoid paying tax or NI and so we will NOT automatically credit you with NI as we (HMRC) use the £15,000 salary figure and not £12,500