Pensions: Early warning for all Companies Jan 08

Any employer contributions to the plan are paid gross, and are therefore not affected, however any employee contributions deducted from net pay will need to change in order that the pre 6^th April, 2008 gross employee contribution is maintained.

 

This will result in a slightly higher net pension contribution for any employee who is paying a contribution net of basic rate tax from net pay. For example an employee with a salary of £20,000 paying a 6% employee contribution has a gross monthly contribution of £100. Under the current tax rate of 22% the net monthly deduction from salary will be £78 per month.  With effect from April 2008 the tax rate will reduce to 20% which means that the net monthly contribution for the employee will be £80 per month.

 

Clients with Group Personal Pension Schemes via Beckett Financial Services Ltd will have access to a draft announcement for use with employees explaining the changes – please speak to your usual Consultant to attain this.

 

Please note that the timing of the payment of the pension contribution in April 2008 is crucial.  In general (some Pension Providers may vary) the April payment (usually relating to March salaries as most employers pay contributions 1 month in arrears) will need to be paid to the provider by 5 April 2008 to benefit from the old 22% tax rate.  If the payment is made to the provider after this date it will be at the new 20% tax rate which could mean that it does not tie up with the deductions made from salary.

 

At present, higher rate tax payers can reclaim an additional 18% tax relief on top of the current 22%, via their self assessment tax return after the tax year end.  When the new tax rate comes into force, higher rate tax payers will be entitled to reclaim an additional 20% tax relief on top of the new rate of 20% again via their self assessment tax return at the end of the 2008/09 tax year.  Higher rate tax payers will need to ensure that they check their notice of tax coding to ensure the correct allowances have been made for pension contributions.