Does anyone know about employment contracts and pensions?

[Cactus2022]

Hi. I started a new job recently. I got to the 3 month mark, passed probation and was duly auto enrolled onto the pension scheme.

My employment contract states I pay 4% contribution and my employer pays 4% contribution. I understand the legal minimum total is 8% with a minimum of 3% coming from the employer.

I received the letter from the actual pension provider recently and in fact, my employer contributes 3%. I contribute 4%, and I get tax relief of 1%.

Again, I understand that these are legal contribution amounts and the total money put in my pension each month remains the same, but feel that my employer has been disingenious. My contract says they will contribute 4% so surely that's what they should contribute, not make that up with tax relief? If I stay with them for several years that 1% represents quite a bit of money that they make out they're paying me but are not.

Perhaps I'm being nitpicky but it is the principal. Maybe they've made a simple mistake.

My question is:

Is this a standard approach dealing with pension contributions in employment contracts? If so I won't raise it. Or have they made a mistake, in which case I want them to pay me 4% contribution or at the very least amend my contract so that it accurately reflects 3%.

Ta.

I think you're being very nit picky.

@Hungrycaterpillarsmummy yes, probably. The employer is also very nitpicky so has made me feel uninclined to let things lie!

Hi OP. You're not being nitpicky. If you earn £40k a year that is £400 per year. £400 per year will increase with pay rises, so if you get a 5% rise your salary will be £42,000 and that £400 per year is now £420. If you work for the company for 20 years with indexation on the contribution and compound growth on your pension monies, we are talking about £20,000 or more for your retirement. Go to HR/payroll and sort it.

Yes but I expect HR will say "yes, we mean 3% plus 1% tax relief". So she won't be gaining anything. But worth getting it sorted.

@Hungrycaterpillarsmummy employer contributions are paid gross. And there isn't a 25% tax rate for this to make sense even if they did try to dodge it.

@Everanewbie thank you so much. I didn't return to this thread all day after reading the first comment so I am very relieved to read yours! This is exactly my point - I don't earn anything like 40k but the principal is the same. And surely fixing this will protect the employer - I could turn around in 10 years time and demand that one percent.

So employer contributions are paid gross. They either need to pay me 4% or correct it to 3%.

I’m confused by this. They don’t pay you. They pay into the pension fund, as you do. Tax relief only really matters for you. You don’t pay tax on your contributions. They don’t pay tax on theirs. As long as you are paying 4% and they match it, then it should be fine. You are entitled to details about the pension and how contributions are worked out. Pension contributions by a company are usually tax exempt and they can save 25% corporation tax. This saving might be what they are talking about.

@TizerorFizz thanks. Yes you're quite right, they pay into a pension fund as do I, but as it will be mine in retirement I do naturally view it as earnings.

My employer hasn't said anything about making tax savings, or corporation tax etc. All I know is that they say they will pay 4%, and have only contributed 3%. The 1% tax relief is from the government I believe which encourages me to save.

I had best just ask HR and see what they come up with.

My employer pulled that stunt and I told them I found the language in the offer letter to be deliberately misleading. They have t changed it. Guess it’s a common trick.

@Vermin that's likely what has happened here. I just wanted to check it wasn't a standard pensions thing before potentially making a fool of myself.

They just gave me a line about well you end up with that amount so why are you even raising this? They made me feel incredibly petty, but like op said, it’s a material difference if you put in the time. Though sadly this bloody Scottish windows pension is currently worth less than has been paid into it. Cheers!

4% employer contribution means 4% of your gross pensionable salary. Don’t let them use any technical terms or gymnastics to wriggle out of it. I’m a pensions specialist by day so I know about this.

Tax relief is obtained by the pension company on the employee contribution, not the employer contribution. I am assuming this is not a Salary Sacrifice scheme... as that is all employer contribution to pension.

So if the contract states 4% of gross salary is the employer pension contribution, then that is what should be happening.

Frustratingly I have discovered my actual contract, which I signed and returned, is not where they lay out pension contributions. That just says they will fulfil their statutory obligations regarding the pension and reserve the right to vary or withdraw the benefits in the clause, or amend the terms of such benefits, at any time.

I also received a summary letter before I accepted the job and that does say 4% employee contribution and 4% employer contribution.

My auto enrollment letter (which I received recently having passed my 3 month probation) contains the following:

'You will pay in 4% of your pensionable pay each pay period. This will be taken directly from your pay and will include tax relief from the government. We will also pay in 4% of your pensionable pay each pay period. Therefore, the total contribution to your pension pot will be 8% of your pensionable pay, unless you or we have chosen to pay fixed monetary contributions'.

Even though they have said total contribution will be 8%, I still think the fact that they have said they will contribute 4% - in two seperate places - means that this is what they must contribute. @Everanewbie do you agree? I have also added the breakdown from the pension company letter.

Thanks

@Cactus2022 absolutely agree with you. Its in black and white. The only thing i would say is that autoenrolment rules say that the minimum contribution is 3% employer and 5% employee for a total of 8%. They have said in black and white that their contribution is 4%, but just be prepared to be told to up your contribution to 5%.

If this is operated by Legal and General, they have lots of info on their web site. See attached. This might not be your pension but you should be able to find the relevant info. The info you posted says 3% employer contribution so you need to check whether it’s 3 or 4% if you have conflicting amounts on different documents.

You can delay for up to 3 months. Often this is the probation period. It’s not unusual.