Topping up employer's pension scheme

[Participant]

Hi all

I have various employer's pension scheme pots and would like to top up the current one from various savings sources including an ISA .

Does this get complicated in terms of tax relief? Am I right in saying that when I make the contribution the provider will automatically top up my contribution by 20% basic tax rate and I will then have to claim relief on the rest through tax return?

Am I any worse off by making personal one off contributions rather than doing it through my employer's salary sacrifice process?

Many thanks.

 

[Psiko]

You should check with the provider but, yes, probably you’d need to claim anything beyond basic rate relief if you top up manually.

One off salary sacrifice is probably the way to do it if your employer allows it. You will get the full relief without needing to claim on a tax return and some employers will top up with the employer’s NI contributions that they save.

 

[dlockers]

Do you have an actual salary sacrifice scheme? The word is a noun and a "verb". A proper salary sacrifice scheme will be NI effective and much more beneficial, as some employers pass on the NI saving to you. Technically on a proper SS scheme you earn "less" than what your salary is, for all intents and purposes. I.e. £50k, but I sacrifice £5k, means I declare I earn £45k and the employer puts £5k in pension and if they are decent, the NI saving they have made by paying you "less" will also be paid to you.

Some payrolls will allow you to top-up your pension pre-tax by just pinging them. Mine is like this. It isn't a salary sacrifice scheme tho, so it is no different than me paying in with my debit card and claiming the tax back.

If you do pay your self, you'll have to fill out a self assessment and claim the tax back. I don't know anything about these "auto top-up basic rate" statements but I have seen a few folk say similar. When I paid with debit card once, I just told my self assessment form that I had paid £1800 post-tax, and they refunded me the equivalent tax back.

In summary, it may be easier to ask your company to take money pre-tax as it avoids you filling out the SA form. However we are near April, so you could only give so much -- if you give "too much" that it looks like you earned under minimum wage, it causes issues. I.e. if I earn £9k/month and I contribute £8.5k, I could fall foul of NMW laws.

 

[HangTime]

It gets a bit complicated in my experience with one off payments. Took me ages to get sorted with HMRC and they will likely push you towards doing a self-assessment tax return. It feels like I'm forever playing catchup for whatever reason, they just paid me over £4k in 2024 that they owed me from the 22/23 tax year, and I'm sure I've still paid way too much tax in the current tax year. There's probably some knack to making it more straightforward but I think if you can do a salary sacrifice that's ideal because then you are avoiding the tax in the first place rather than getting taxed and then going through the rigmarole to claim it back.

 

[EvilRob]

It gets a bit complicated in my experience with one off payments. Took me ages to get sorted with HMRC and they will likely push you towards doing a self-assessment tax return. It feels like I'm forever playing catchup for whatever reason, they just paid me over £4k in 2024 that they owed me from the 22/23 tax year, and I'm sure I've still paid way too much tax in the current tax year. There's probably some knack to making it more straightforward but I think if you can do a salary sacrifice that's ideal because then you are avoiding the tax in the first place rather than getting taxed and then going through the rigmarole to claim it back.

SAs are quick and easy to fill in and I think make it easier to determine whether you have really paid the right amount of tax or not. I'd rather just do that than try and faff around other ways of managing tax.

 

[swillsy]

Why would you move funds out of the ISA for this? You've paid the tax on it already so would just be locking it away in a pension. On the other funds for the one-off payment you can do this and declare on SA to do this like EvilRob said.

 

[Participant]

Thanks for the above thoughts all. I already do self assessment so it sounds like the process is to claim the additional above basic relief via my self assessment return.

Why would you move funds out of the ISA for this? You've paid the tax on it already so would just be locking it away in a pension. On the other funds for the one-off payment you can do this and declare on SA to do this like EvilRob said.

To bring my gross earnings down enough to avoid losing my personal allowance.

 

[dlockers]

It gets a bit complicated in my experience with one off payments. Took me ages to get sorted with HMRC and they will likely push you towards doing a self-assessment tax return. It feels like I'm forever playing catchup for whatever reason, they just paid me over £4k in 2024 that they owed me from the 22/23 tax year, and I'm sure I've still paid way too much tax in the current tax year. There's probably some knack to making it more straightforward but I think if you can do a salary sacrifice that's ideal because then you are avoiding the tax in the first place rather than getting taxed and then going through the rigmarole to claim it back.

Interesting --- I have never had an issue. I fill out the SA broadly correct (they check and correct anyway), and had my tax refund about 7 days later.

To bring my gross earnings down enough to avoid losing my personal allowance.

I think he was just reiterating, don't put ISA money into the pension until you've maxed out your salary sacrifice contribution.