added to the individual’s pension pot. The rationale is that both types of arrangement offer tax relief for employees on their pension contributions but unfortunately this is not the case for every single pension contributor.
When an employer chooses a pension provider, the pension scheme they choose may work well for some of its employees but not for others.
The auto-enrolment threshold is for earnings above £10,00 but the current basic tax threshold is £12,500. Anybody earning between £10,000 and £12,500 and in a net pay arrangement pension scheme will have a full pension deduction taken from their pay but will not receive any tax benefit on this as they have not earned enough to attract tax on their earnings. If they were in a relief at source arrangement, they would only have 80% of the contribution taken from their net pay which would then be topped up with 20% from HMRC and they would therefore enjoy the tax relief benefit. It becomes apparent that something as simple in the way in which relief is provided can have a massive impact on the pension savings of employees up and down the country. Employees who do not earn £10,000 or above to meet the threshold for auto-enrolment but ask to be added into a pension will also be affected. This is also true for individuals who don’t hit the threshold, but in some pay periods experience a pay spike, e.g. they receive a bonus. If this pay spike pushes them into the £10,000 earnings bracket for that pay period and there are any spikes in subsequent pay periods, then contributions will be taken in line with auto- enrolment legislation but, again, there will be no tax benefit to the employee if they have not have earned enough for tax deductions to be taken. Conversely, in a relief at source arrangement, employees who are earning within the higher and additional tax brackets only receive a 20% top up to their pension pots from HMRC through payroll, as opposed to the 40% and 45% they are entitled to. In order to receive the extra relief due to them, these individuals need to complete a self-assessment tax return. Many of those affected by this may not be aware of the processes they need to follow to receive the relief or may not be aware of the additional entitlement at all.
Geographical extent
CIPP comment
The CIPP is a member of a group campaigning to ensure that there is a level playing field for all pension contributors, and strongly believes that the government should address these issues.
The CIPP is working to create case studies of individuals who have been affected by these anomalies and would now like to hear from any member who has experience of low paid workers being automatically enrolled into a pension scheme because of a spike in pay. Please email policy@cipp.org.uk if you are able to help with this scenario.
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Recognised overseas pension schemes notification list 3 December 2019
The list of Recognised Overseas Pensions Schemes (ROPS) notifications has been updated.
The list is of schemes that have told HMRC they meet the conditions to be a ROPS and have asked to be included on the list.
There have been 13 scheme names added to the list, and one removed. No amendments have been cited in this update.
A very welcome change is that HMRC now list the updates, as follows.
Schemes added
The Chartered Institute of Payroll Professionals
Payroll: need to know
cipp.org.uk
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