Pension contribution deductions from net or gross.

darkgen

darkgen

darkgen

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Thicko + beer moment 101.
I've just gone through a pretty tortuous TUPE process and the aftermath has placed me at odds with payroll regarding pension contributions. Payroll is insisting that pension contributions (as a percentage of pay) are deducted from my monthly net and not gross pay.
My addled mind is telling me this is incorrect and in actuality any pension contributions should be deducted prior to tax/NI. The premise of contributing was to allow for this slight tax/NI relief.
Burrrr.
Am I being daft? Is my thinking backed up by any GOV websites?

Cheers, Paul.
 
Pension contributions are from gross salary for contributions and income tax is paid on withdrawals beyond the 25% allowance. Payroll are frighteningly wrong.
 
Indeed. I've TUPEd from a company of 50k+ employees to sub 200. It's quite a culture shock. I'm trying to find a link to some legislation or guidance.

ugh.
 
darkgen said:
Thicko + beer moment 101.
I've just gone through a pretty tortuous TUPE process and the aftermath has placed me at odds with payroll regarding pension contributions. Payroll is insisting that pension contributions (as a percentage of pay) are deducted from my monthly net and not gross pay.
My addled mind is telling me this is incorrect and in actuality any pension contributions should be deducted prior to tax/NI. The premise of contributing was to allow for this slight tax/NI relief.
Burrrr.
Am I being daft? Is my thinking backed up by any GOV websites?

Cheers, Paul.
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They probably just don't understand the difference between net and gross. As bad as it it, a lot of people think gross = excluding VAT, etc.
 
darkgen said:
Indeed. I've TUPEd from a company of 50k+ employees to sub 200. It's quite a culture shock. I'm trying to find a link to some legislation or guidance.

ugh.
Click to expand...

Not to sound like a tugger, but if they don't know how pension contributions are paid, I doubt quoting legislation will help clarify the matter to them. :p

It is slightly worrying though, as that would suggest everybody else is having their contributions paid net of tax...
 
Fellow, you have no idea.

I am highly anxious with this new company, and with around 4 colleagues that have TUPE'd with me, I do currently feel somewhat like the spokesperson.
 
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Actually it could be either.

If its taken from gross pay this is called the NET PAY Method, the money goes straight to the pension provider, this method is common for Final Salary schemes and Occupational Money purchase schemes.

It could be taken from net pay then the pension scheme reclaims the tax, this is called RELIEF AT SOURCE. This is common form Group Personal Pensions Schemes (which is basically a bunch of private pensions not an occupational scheme).
 
Have you had a payslip from the new company yet to see if they are making a mistake? As Robbo says, it may just be a case of them being confused by the terms gross and net. I'd be surprised if any payroll software allows pension contributions to be put through net of tax.
 
Hah, and on cue to that;

"I can assure you that your pension has been set up with <numeric>% deduction every month. Our payroll software calculates everything automatically, the <numeric>% PAYE is deducted from your annual salary then that value is used for the pension calculation."

Hmmm. And yes, the expected contribution value is incorrect on this month’s pay, hence the clarification sought from payroll.
 
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Is it possible that pre-TUPE you were on a Salary Sacrifice pension? This would show as a deduction from your Gross or reference pay. The New company may operate a non salary sacrifice model which on a payslip looks totally different but, is almost the same Net pay result.

Was TUPE'd myself in May and made redundant in June. My former colleagues are all having issues with payroll & HR departments. Seems to be a common side effect of TUPE's.
 
darkgen said:
Hmmm. And yes, the expected contribution value is incorrect on this month’s pay, hence the clarification sought from payroll.
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divide the figure by 0.8 if it then comes out at the figure you expect then you are on Relief at Source and your pension provider will get the extra from HMRC.
 
Have to say I'm baffled.

I'm unclear how the relief can be applied both ways?!

Surely if you have a percent deduction from gross prior to tax, that translates to a tax free contribution to a pension pot and in turn means tax is then calculated on gross minus pension contribution which means a slight relief in actual tax paid ergo more money in your pocket.
 
Net pay method

1000 salary 5% pension contribution
£50 to pension
£950-20% Basic Rate Tax = £760 pay

Relief at Source
£1000 salary -20% BRT = £800 pay (before pension)

then £40 paid to pension, Pension scheme reclaims £10 from HMRC
hence £50 (£40/0.8) pension contribution and £760 in pocket
 
OK, that boiled by beer head but understand.

So basically I need to clarify the type of pension scheme the company operates (which I have also sought clarity on over the last few weeks without success thus far).
 
PhilGQ said:
If its taken after tax then dividing pension contribution by 0.8 will show the Gross Contribution. The scheme will get 20% from HMRC
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This is what doesn't add up regardless of pension type. The net method does not equate to the gross.
 
Look on your last statement or the policy document if you have got it.

If it says Group PERSONAL Pension or Group Stakeholder its a private pension and will almost certainly be as I have described (relief at source).

If it doesn't say Personal Pension or Stakeholder its probably an Occupational Pension so could be either way. It may be best to ring the pension provider and ask them if they are giving the tax relief.
 
Understood. I hear you. And I would love to do all of those things but as yet this new company is still to release any information regarding the type and provider of this pension scheme.

Heaven forbid they’re just syphoning the money into a company account to accrue interest :)
 
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