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  • FIRST POST
    • Mrs_Rachel_Trelfa
    • By Mrs_Rachel_Trelfa 15th Apr 18, 2:51 PM
    • 400Posts
    • 830Thanks
    Mrs_Rachel_Trelfa
    Understanding My Payslip
    • #1
    • 15th Apr 18, 2:51 PM
    Understanding My Payslip 15th Apr 18 at 2:51 PM
    Hi All,

    While I am fairly clued up on most financial matters. I must say that pensions are a topic that really confuses me.

    I have recently started a new job. Under my previous employment I was having just under 10 per month deducted form my pay. The Pension Benefit Statement shows I have a little over 1,450 at 06.04.18.

    With my new employer I have gone through auto enrolment again but they offer SMART pension which I understand that they deduct my pension contribution from my pre tax salary and then make the payment. This is supposed to save me money??? Do I need to do anything with my old pension like move it to my new one??

    I have received my first pay slip from my new employer and I am struggling to understand it and I am hoping you can help me.

    Reference Salary x
    SMART Pension % -x
    Childcare Vouchers -x

    Which gives me my total payments. A

    Deductions

    PAYE Tax x
    NIC x
    Pension EES Net % x
    Pension ERS % x
    SMART Contributions x

    Which gives total deductions B

    A minus B gives me my net pay which I understand. But this looks like I am paying twice for my pension? Although the total when I add up all that's under deductions is not value B, its only PAYE + NIC + Pension EES.

    Is anyone able to explain this to me? Also I understand that last month I was only having 1% deducted, but now it is going up to 3%?

    Lastly, once I pass my probationary period, my contract states that I am eligible to receive matched employer contributions of between &% ans 10% of basic salary (subject to a minimum employee contribution of 5% of basic salary). E.g. Employee contribution 5%, Employer 7%. Am I right in thinking that it will be worth me doing this? Although 5% of my salary is quite a lot what with childcare and other household expenses, but then if they are taking 3% out as of this month, another 2% shouldn't be too much of a hit??

    Apologies for the essay of a post.
    House purchased November 2013
    Original MF Date: January 2045 - 104,400
    Current MF Date: March 2036 - 83,501.33
    MFW 2016 #6 7,350/7000
Page 1
    • LHW99
    • By LHW99 18th Apr 18, 8:28 PM
    • 1,251 Posts
    • 1,140 Thanks
    LHW99
    • #2
    • 18th Apr 18, 8:28 PM
    • #2
    • 18th Apr 18, 8:28 PM
    Can't answer everything above, but if your employer will give you more if you can afford to put a bit more in, don't turn down free money!
    • Superscrooge
    • By Superscrooge 19th Apr 18, 8:14 PM
    • 1,067 Posts
    • 765 Thanks
    Superscrooge
    • #3
    • 19th Apr 18, 8:14 PM
    • #3
    • 19th Apr 18, 8:14 PM
    Re matched employee pension contributions. The usual advice is for you to make the maximum contribution that your employer will match. It's free money.

    Think of it like having a bank account where for every 1 you put in, your employer also puts 1 in.

    This section of the forum doesn't receive many visits. You might get more answers to your other questions if you post on the main pensions forum,
    • hugheskevi
    • By hugheskevi 20th Apr 18, 6:28 PM
    • 1,978 Posts
    • 2,462 Thanks
    hugheskevi
    • #4
    • 20th Apr 18, 6:28 PM
    • #4
    • 20th Apr 18, 6:28 PM
    With my new employer I have gone through auto enrolment again but they offer SMART pension which I understand that they deduct my pension contribution from my pre tax salary and then make the payment. This is supposed to save me money???
    It does save you money. Employer pension contributions get better relief than employee pension contributions. SMART contributions effectively change employee contributions into employer contributions.

    All pension contributions attract income tax relief, but if your pension contributions are made under SMART arrangements they also don't attract a National Insurance liability on the amount of the pension contribution. For example, say you pay 100 into a pension, using SMART contribution method means you will pay 12 less in National Insurance contributions.

    Note that throughout para above there are some exceptions, but I've written about the most common circumstances to keep it simple.

    Do I need to do anything with my old pension like move it to my new one??
    You don't need to, but you may wish to do so. Each pension will have different charges and investment options. If your new pension is better, then you would want to transfer the old pension. Even if the old pension is better, you might still want to transfer for ease of having everything in one place, especially as the old pension is so small.

    I have received my first pay slip from my new employer and I am struggling to understand it and I am hoping you can help me.

    Reference Salary x
    SMART Pension % -x
    Childcare Vouchers -x
    It will help if you always keep in mind 3 key figures - reference salary, gross salary and net salary.

    Gross salary is the amount of pay your employer gives you and is subject to National Insurance and Income Tax. Net salary is what you actually receive into your bank account. Reference salary is a figure which is the amount your employer pays you before they deduct various elements prior to tax - in your case SMART pension contributions and childcare vouchers. Take these deductions from your reference salary to get your gross salary.

    Deductions

    PAYE Tax x
    NIC x
    Pension EES Net % x
    Pension ERS % x
    SMART Contributions x

    Which gives total deductions B

    A minus B gives me my net pay which I understand. But this looks like I am paying twice for my pension? Although the total when I add up all that's under deductions is not value B, its only PAYE + NIC + Pension EES.

    Is anyone able to explain this to me? Also I understand that last month I was only having 1% deducted, but now it is going up to 3%?
    Income Tax (PAYE Tax) and National Insurance (NIC) are definitely deductions. As it is a SMART pension, the employer and employee contributions are all captured within the difference between reference and gross pay so there are no further deductions.

    It is odd that you appear to have two different types of employee pension contributions - SMART and normal. Perhaps you have chosen to make extra contributions, or are close to minimum wage. If you do not know why you are making non-SMART contributions you should query the reason with your payroll.

    Also I understand that last month I was only having 1% deducted, but now it is going up to 3%?
    It depends on how your pension contributions are calculated by your employer. The statutory minimum contributions are increasing from 1% on a band of earnings to 3%. If your contributions are calculated on a statutory minimum basis they will increase, but your employer might, for example, pay 1% on all of your earnings, which depending on your salary might exceed the statutory minimum of 3% on a band of earnings. In that case there would be no statutory need to increase the contribution level (but your employer could do it anyway).

    Lastly, once I pass my probationary period, my contract states that I am eligible to receive matched employer contributions of between &% ans 10% of basic salary (subject to a minimum employee contribution of 5% of basic salary). E.g. Employee contribution 5%, Employer 7%. Am I right in thinking that it will be worth me doing this? Although 5% of my salary is quite a lot what with childcare and other household expenses, but then if they are taking 3% out as of this month, another 2% shouldn't be too much of a hit??
    From the above, it sounds like if you contribute 10% your employer will also contribute 10%. That should be the target. If you only pay 5% you are giving up 3% of remuneration (as your employer puts in 7% rather than 10%) and you also do not pay National Insurance (probably 12%) or income tax (probably 20%) on the extra 5% contribution. So your choice is 3.4% higher salary after Income Tax and National Insurance, or an additional 8% into your pension (5% from you, 3% from employer). Even if you pay 20% income tax when you withdraw the pension, taking into account 25% tax free lump sum means you will receive 6.8% of the contribution after income tax (20% tax on 75% of the contribution and 0% on 25% of the contribution) - literally twice as much as you will receive if choosing to take the money now. Note there will also be investment returns to factor into the pension money.
    Last edited by hugheskevi; 20-04-2018 at 6:32 PM.
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