Pensions & Tax relief: Don’t let your employees miss out!

According to HMRC’s latest statistics, pension contributions increased by almost 20% in the 2015/16 tax year compared to the previous year. In addition to this, due to automatic enrolment, membership in pensions is also on the rise.

Why save into a pension?

To incentivise employees to save into the pension, the Government offers tax relief on employee contributions into a pension scheme (subject to an Annual Allowance).This is surprisingly not common knowledge amongst those saving into a pension.

Tax relief is relatively simple, for a basic rate taxpayer to get £1,000 into pension, they only have to pay £800 with the government adding the remaining £200 (20% relief) into the pension to make the contribution up to £1,000.

Higher rate taxpayers can claim a further 20%, which in this scenario would be a further £200. Meaning the actual cost of a £1,000 pension contribution would be £600.

Additional rate taxpayers can claim a further 25% after basic rate tax relief, resulting in an effective cost of £550 for a £1,000 pension contribution. It is important to note that higher and additional rate taxpayers typically must claim back relief in excess of the basic rate through their tax return.

What are the benefits for the employer?

In an increasingly competitive workplace, it is more important than ever that employers offer an attractive overall employee benefits package to help recruit, retain and engage their workforce. Our team of Employee Benefits Consultants can provide one to one guidance on pension matters including tax relief, ensuring your employees get the most out of the benefit you are providing and in turn appreciate more the benefit of the pension the company is providing. In addition, providing employer pension contributions meet the criteria of being wholly and exclusively for the purposes of the business, they can be treated as an allowable business expense and offset against corporation tax for the company.