Calculators

The Impact of Tax Cuts on Employee Pension Contributions

1st February 2008

Clive Leah, Chairman of Shirebrook Financial Services, explains how the forthcoming cut in the base rate affects employee pension contributions.

On 6th April 2008 the basic rate of income tax goes down from 22p in the ? to 20p in the ?. This will affect your pension contributions after 6th April 2008.

As you know, your pension contributions are deducted from your salary or wages on a net basis, for example:

If your gross contribution works out at ?130 per month or, say, ?30 per week then the current deduction from your pay is ?101.40 or ?23.40 respectively. This is paid by your employer to your pension provider.

HMRC (the Inland Revenue) then pay ?28.60 or ?6.60 directly to your pension provider to make up your gross contribution.

From 6th April 2008 the position will change. Your equivalent deduction will be ?104.00 and ?24.00 respectively and the "top-ups" from HMRC will be ?26.00 and ?6.00 - thus maintaining your current gross contribution position.

You do not need to take any personal action on this, the change will be effected through your employer's payroll system.

Higher Rate Taxpayers

If you are a higher rate taxpayer the overall position will not change because the higher rate of tax is to remain at 40%.

Your net contributions from salary will change in the way described above but you will be entitled to further relief equivalent to 20% of your grossed up contribution as opposed to the current level of 18%.

Not Sure How This Affects You?

If you would like us to calculate exactly how the changes will affect you personally please give us a call. We shall be happy to help.

The Impact of Tax Cuts on Employee Pension Contributions

Higher Rate Taxpayers

Not Sure How This Affects You?

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