Pensions insight
net pay pension scheme are losing out on tax relief through no fault of their own. How many low pay workers are aware of this? If they were in an RAS scheme, their contributions would have been taken net of basic rate tax relief and would still have been grossed up by their pension provider. Pension scheme members who don’t pay income tax are permitted to basic rate tax relief (20%) on pension contributions up to £2,880 a year. In practice, this means that HMRC will top up a net contribution of £2,880 to a gross £3,600. However, this tax relief is only available where the employer operates a pension scheme on the RAS basis. The government puts a limit on the amount of pension contributions (savings) on which you can earn tax relief in a year: ● The annual allowance – This limits the amount of tax relief available on pension savings in a tax year. For 2018/19 the allowance is £40,000, but the amount for a year can vary; for example, you can carry forward unused allowances from the previous three years. ● The lifetime allowance – This limits the amount of tax relief available on
pension savings in your lifetime. For 2018/19, the allowance is £1,030,000. If the total value of entitlements to pension benefits exceed the lifetime allowance, income tax is payable on the excess. You’ll get a statement from your pension provider telling you how much tax you owe if you go above your lifetime allowance. Your pension provider will deduct the tax before you start getting your pension. ...no employee pension contributions to receive tax relief The way the lifetime allowance charge applies depends on whether you receive the money from your pension as a lump sum or as part of regular retirement income. Any amount over your lifetime allowance that you take as a lump sum is taxed at 55% and your pension scheme administrator should deduct the tax and pay it over to HMRC, paying the balance to you. If you take it as a pension payment
or cash withdrawal the rate of tax you pay will be 25%. You might be able to protect your
pension pot from reductions the government makes to the lifetime
allowance. To do this you would need to tell your pension provider the type of protection and the protection reference number when you decide to take money from your pension pot. n Salary sacrifice In a pension salary sacrifice arrangement the employee gives up salary in exchange for an enhanced employer pension contribution. The arrangement serves to reduce, amongst other things, the employee’s income tax and National Insurance contributions but as the arrangement is for employer pension contributions
there are no employee pension contributions to receive tax relief.
More information about the different types of pension scheme is available from the Pensions Advisory Service website: https://www. pensionsadvisoryservice.org.uk.
Automatic enrolment and pensions for payroll
ONE DAY DURATION
This course highlights employer’s challenges, responsibilities and obligations to all key parties involved with pensions and automatic enrolment, to enable compliance within the set timeline.
This course covers: ● Types of pensions schemes and the legal framework ● Payroll implications ● Staging dates, postponement and deferral ● ‘Workers’, worker assessments and communications ● Opting out, opting in and joining
● Re-enrolment ● Contributions and refunds ● Issues relating to TUPE ● Fines and penalties
Book online at cipp.org.uk or email info@cipp.org.uk for more information.
cipp.org.uk CIPP_UK
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Issue 45 | November 2018
| Professional in Payroll, Pensions and Reward |
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