This results in double pension tax relief being claimed and the wrong amount being paid into the employee pension plan.
To make sure this doesn't happen it’s essential that both employee contributions are deducted and payroll systems are set up the correct way.
We're therefore asking all employers and payroll managers to check their payroll software is:
If anyone else manages your payroll please ask them to check and confirm your payroll software or process works with the pension scheme and the basis for deductions is correct.
If your Group Personal Pension or Group Stakeholder Pension scheme:
Includes a salary exchange arrangement
You’ll need to calculate the employee contributions before income tax and national insurance have been deducted. You’ll then add this contribution to your employer contribution and upload it each month. This ensures no further tax relief is claimed by Royal London on your employee’s behalf.
For example, if your employee contributes 10% of their gross monthly salary of £2,000, the employee contribution of £200 is added to your employer contribution and uploaded to the pension scheme for that month as an employer only contribution.
Doesn't incude a salary exchange arrangement
You’ll need to calculate the employee contributions after income tax has been deducted. You can then upload this contribution each month and we’ll apply 20% tax relief to it, which we'll claim back from HMRC. If any of your employees pay higher or additional rate tax they’ll need to claim any additional tax relief direct from HMRC.
For example, if your employee contributes 10% of their gross monthly salary of £2,000 into their pension plan, their employee contribution of £160 (£200 less basic rate income tax of 20%) is uploaded to the pension scheme alongside any employer contribution expected for that month.
We'll then make a claim to HMRC for the pension tax relief of 20% (£40) and add this to the employee’s net contribution of £160 to make a gross pension contribution of £200.
Please note we can’t accept employee contributions deducted on a net pay basis, which means before income tax has been deducted but after National Insurance. This would result in excess tax relief being claimed that would have to be paid back.
If you have any questions or would like more information, please contact your Servicing Team to discuss.