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NatWest Cushon (NET PAY)

GPP’s and some Master Trusts

(RELIEF AT SOURCE)

Salary Exchange

Full contribution amount is deducted from GROSS pay

Employee benefits from correct tax relief automatically

Employee pays 5% (£100) in pension contributions, they will only pay tax on wages of £1900.

As tax isn’t paid on the £100 of earnings that is paid into a pension, the employee is saving tax of £20 (£100x20%). This means the £100 contribution is only really costing them £80

Higher rate and additional rate taxpayers benefit at their marginal rate automatically

Contribution amount is deducted after tax.

Employers would deduct 80% of the pension contribution from salary and send to the pension provider who would then adds 20% tax relief.

Employee pays 5% of earnings to a pension, they will only have 4% deducted from their pay. This is £80 (£2000 x 4%) and the government will put £20 into the pension scheme by way of tax relief (making it £100 total)

Higher-rate and additional-rate taxpayers will still only have 20% tax relief applied to their pension contributions. This means they will need to complete a tax return to claim the difference in their marginal rate.

Employees agree to reduce their salary in exchange for their employer contributing more to their pension.

This benefit is not subject to tax or NICs so the taxable salary is reduced.

Their salary is then adjusted by 5% to £22,800
The reduced amount is paid into the pension (£1200 or £100pm)

Employer also saves on their own NICS too

Employers save on reduced NICs for staff and can choose to retain or pass on some/all the benefit to employees

Employee benefits from paying less tax and NICs due to receiving lower pay, resulting in a slight increase in take-home pay