Pension and tax.

[Popettypop]

Ok so I know absolutely nothing about this and when I called the tax office I am still none the wiser.

So last tax year I earned over the 50k (just) so they have changed my tax code for this year to
a) repay what I didn't pay last year
b) assume I will go over the 50k again.

So I work a lot of overtime and a lot of bank shifts.
I thought if I upped my pension contributions ( I am 59) this would help to keep me under the threshold?

Seems this is not the case?
I thought pension contributions were not taxed /

Say for instance you earned 2K and you paid 10% pension (200) I assumed that only 1800 was taxable?

They have now put me on non cumulative tax code what ever the jesus that means.

I work for the NHS but do not have nor eligible for the NHS pension I pay 8% ( which my employer meets) to Scottish widows .

On my bank shifts I pay 20% to Royal London .

I pay tax on all my pension contributions and and this will be taxed again when I draw it?

Fully admit to being clueless.

I think if you are paying into a non employer scheme then you will need to complete a tax return to claim the additional tax relief. The tax office won't know about your private contributions unless you tell them in some way.

Sorry meant to add a link! See here

It's a work place pension if that makes a difference?Apologies for not understanding this at all.

Just checking that you know that if you earn over £50,271 you only pay 40% tax on the amount over that threshold not on all your income.

If you’re paying into a pension your contributions should be net of basic rate tax (20%) and you reclaim the other 20% via your tax return for any contributions you paid 40% tax on. So tax free on the way in and taxed when you draw your pension.

You say you work for the NHS but then say you are not eligible to join the NHS pension and have an employer based scheme. Do you work through an agency ?

Also you mention 2 pensions....Royal London & Scottish Widows. Which is your employer scheme & is the other one a private one that you pay into ?

Private pensions are based on the Pension Company grossing up your contribution, thus you get the tax relief added in on your behalf. For example, if you pay £400pm then £500 is credited to your plan. As a pp has said above, if your income goes into the 40% bracket then you can claim extra tax relief back via Self Assessment.

It will depend how your pension scheme has been set up - whether it’s a net pay or relief at source arrangement. See link. If it’s a net pay arrangement then your pension contributions are deducted from your pay before tax is calculated. If it’s relief at source then your pay is taxed in full and the pension arrangement claims the tax relief back (and as pp have mentioned you would need to do a tax return to claim back any higher rate tax).

www.litrg.org.uk/pensions/paying-pensions/tax-relief-pension-contributions/how-tax-relief-given-pension-contributions#:~:text=If%20you%20are%20in%20a,pay%20after%20tax%20is%20calculated.

Just checking that you know that if you earn over £50,271 you only pay 40% tax on the amount over that threshold not on all your income.

Yes it was 54 so aware its only on the balance.

You say you work for the NHS but then say you are not eligible to join the NHS pension and have an employer based scheme. Do you work through an agency ?

No I work in a substantive role for what was a Social Enterprise who are employed by the MHA. I am on A4C and have an NHS payslip etc but the Social Enterprise would not honour the MHS pension and use Scottish Widows.
I pay 8% of my basic salary and my employer pays 8% also.

If it’s relief at source then your pay is taxed in full and the pension arrangement claims the tax relief back (and as pp have mentioned you would need to do a tax return to claim back any higher rate tax).
Its's relief at source.

Your link made perfect sense in that they are not actually taking 8% ? I take it the tax relief takes it to 8%.

How very confusing it all is.

The reason I work on NHSP for extra money as opposed to overtime is only my basic rate is pensionable so my additional hours can go into pension pot too.

Thank you all for your replies.

I just don't trust the HMRC at all as they had me on emergency tax for over two years and then took another year to be refunded thousands of pounds.

I think I was posting hoping for a loophole that if I paid extra and more into my workplace pension it may have kept me out of the 40% bracket.

I think that would have to be paying AVC’s (Additional Voluntary Contributions) by way of salary sacrifice if your company offers this? But I may be incorrect

It should do. But on your self-assessment not PAYE I think. My other half is on over the limit and whacks a fortune in his pension to pay less tax, but has to self assess annually. HMRC are really helpful if you call them.

It isn't a loophole, but if you make contributions to your pension you get 20% added automatically. If you pay more than 20% tax rate on your income, you can reclaim the additional amount by writing to HMRC after the end of the tax year.

Later when you retire, the pension you draw down is then taxed as income. That means you pay tax on it at that point. Essentially the tax deferred. ALso for most people they have less income in retirement so those higher earners may not still fall into the higher rates of income tax.

It is a way of encouraging people to save for retirement. If you saved without the tax deferral you wouldn't lock it away for so long. It also encourages investment in companies and so helps encourage economic growth.

So I do actually have quite a lot of disposable income but a rubbish pension pot. So would like to put more in a pension pot if possible.
I have a 450k home and mortgage free and my husband has a great Navy pension and an MOD one.
So how do I up my pension contributions and avoid the higher tax rate?

For simplicity’s sake, let’s say £5,000 of your earnings will be taxed at 40%. You pay £4,000 to your personal pension plan (some of this is top up over and above the 8% that you pay). You are paying from your net earnings after tax deductions.

Your £4,000 gets grossed up to £5.000 by the insurance company and invested. You then claim an additional 20% i.e. another thousand pounds of the grossed up amount back in relief from the tax office yourself. This then means you are only effectively paying £3000 and you are getting £5000 invested to pension, hence getting 40% relief.

I am PAYE on my substantive post and my bank shifts.
I pay 20% into pension on bank shifts but NHSP don't contribute anything so a bit rubbish really. However it's a way to save I suppose. I am paying 40% tax on my substantive role and 20%tax and 20% pension on my bank shifts.

Find out from your employer if you can top up via additional deductions from pay.

If not you can just set up a personal pension plan yourself and pay that top up amount over and above your 8 percent

Perfect.

So do I ask my employer to do that at source or how do I make that happen?

So sorry for not being at all knowledgeable about this.

So what about your Royal Life pension? Are you contributing to that ? Might be easier to make payments to that rather than arsing around with your employers scheme.

No need to apologise. Maybe start by asking your payroll team how people can pay extra to the scheme. Or as Biggaybear suggests investigate what’s possible with the other scheme

I'm paying that through PAYE on NHSP shifts. It is taken at source. 20% is maximum.

Utterly clueless.

Come from a family of self employed who used property as their pensions but now I am 59 realise my one sole property is not going to cut it.

I will make some calls tomorrow and keep you updated.

Thank you everyone.