Confused by MSE’s Pension Calculator

milkyjoeboosh

I appreciate that the MSE pension calculator is only intended as a “rough guide”, but I don’t understand its results. And I appreciate I’m probably being really stupid, and missing something obvious, here.

Assuming my salary is £60k, and my employer contributes 3% per month and I contribute 10%, the calculator states the following:

Cost and Contribution

What contribution costs you/month: £500

What's added to pension (contribution + tax relief): £833.33

Employer contribution: £150

Your Savings

Monthly: A reduction of £500 from your pay packet adds £983 to your pension

Annually: A reduction of £6,000 from your pay packet adds £11,796 to your pension

But I don’t see £983 going into my pension - I see £650 (the actual contributions). I appreciate my contribution is pre-tax, so I’m effectively saving there, but what is this extra money that’s supposedly being added to my pension each month? 

Again, I appreciate I’m probably missing something obvious, but I can fit the life of me work it out right now. Is it something to do with the fact that I’d be in the higher tax band?

Many thanks

milkyjoeboosh

Ah. Relief at source vs NET. I think I see now…

Dazed_and_C0nfused

I think you may be approaching this from the wrong angle.

If you add £500 using net pay then £500 ends up in your pension.  But you might pay less income tax.

If you add £500 using RAS then the pension company adds £125 in basic rate tax relief so you have £625 in your pension.

If you sacrifice £500 then your employer add £500 to your pension and nothing extra is added.  But you might pay less tax and National Insurance.

Whatever happens adding £500 can never result in £833 in your pension fund.

Adding £833 might only ultimately cost you £500 (or less in some scenarios) but that's approaching it from a different angle.