Workplace Pensions

Workplace Pensions are not new but the Auto Enrolment legislation compelling all employers to provide one for their qualifying staff is. Workplace Pensions that are used to meet this new legislation must follow some new rules. The responsibility for choosing a Workplace Pension falls on each employer so getting the right scheme is an important decision.

 All Workplace Pensions used for Auto Enrolment must:

  • Be open to all employees without the need for any employee to complete an application, sign any forms or provide any information
  • Meet strict rules on charges
  • Offer a default investment fund that is suitable for all
  • Offer additional investment options for those that want them
  • And be a registered pension scheme with HMRC

There are more rules than this but these are the most important. Salvus Mastertrust meets all of these rules.

There are 2 main types of workplace pension available today.

  • Group Personal Pensions - Provided by insurance companies and regulated by the FCA.
  • Occupational Defined Contributions Pensions – Provided by workplace pension providers such as Salvus, by insurance companies and by third party administrators and are regulated by The Pensions Regulator.

The Financial Services Compensation Scheme (FSCS) is the compensation scheme for customers of UK authorised financial services firms. FSCS protection in the event of failure is available to protect pensions for members. To read the safeguards afforded to occupational pension schemes such as Salvus Mastertrust, click here.

Tax relief Arrangements:

  1. Relief at Source
    1. The employee contribution is deducted after tax is calculated in payroll and is, therefore, net of basic rate tax
    2. The pension provider claims basic rate relief from HMRC
    3. Note with this option high rate taxpayers will have to make an additional claim via their tax return annually to get the full benefit. Any high rate tax relief claimed  will be given to the taxpayer either by tax refund or through an adjustment in the tax code
    4. The additional tax relief is not added to the pension automatically
  2. Net Pay Arrangement
    1. The employee contribution is calculated before tax is calculated in payroll and is deducted from gross pay – with this route tax relief is given by lowering the amount of tax the employee pays
    2. You have to be a taxpayer to benefit from the tax relief top up with this method
    3. High rate taxpayers immediately benefit from tax relief without the need for any additional tax reclaim
    4. If the member is a non-tax payer they will not benefit from tax relief

In this example, we have compared the two tax relief methods. We have used examples of typical taxpayers and demonstrate how tax relief operates for all.

Salvus Mastertrust operates tax relief via the Net Pay Arrangement method and all contributions collected by Salvus will be the full gross contribution as tax relief is immediately granted at the members highest marginal rate via payroll with no additional tax reclaim required.

Any member who is a non-tax payer will not receive tax relief on their pension contribution. This will not affect the amount going into the pension but will impact on take-home pay.