Hope I can get some help with this.
I am currently paying into my company's pension group plan and the company also makes a payment into this. I also opted out of SERP's, having this paid into my group pension. I have only just noticed after a few years of paying into this that, mine and everyone elses NI Tax Code is A when it could possibly be D which means we pay less tax.
Am I right?
"Trevor" wrote
There are two forms of "contracting-out" :-
(a) you pay lower NI & join a company scheme (getting benefits from here, usually also paying contributions here as well);
(b) you initially pay normal NI, but then an "NI rebate" is passed from the DSS to the pension plan to be invested in your "account".
If you are paying the normal (higher) rate of NI, just check whether the NI rebate is making its way into your pension (eg check statements from the pension).
Really? I thought there is only one kind. The company scheme either is or is not opted out. If you delay joining the company scheme, then I suppose it may be possible to join it retrospectively and have some NI refunded, but the thing normally called the NI rebate arises from the fact that the contracted-out 1.6% rebate is calculated on income above the LEL, whereas the initial NI will have been charged on income above the PT, which is £12pw higher than the LEL. This rebate is paid to the employee, not to the scheme.
On earnings of £200pw a typical payslip would tend to show either NI deducted at 11% of £(200-89), and a rebate of 1.6% of £(200-77), or, more likely, NI deducted at (11-1.6)% of £(200-89), and a rebate of 1.6% of £(89-77).
"Ronald Raygun" wrote
Well, for a traditional "final salary" type company scheme, it would be case (a) above.
For a personal pension type scheme (OK, this might not be a true "company" scheme - but please bear with me!), then case (b) above applies instead.
I haven't had much experience of them, but I'm guessing that other money purchase company schemes, such as "Group Personal Pension" (GPP) plans - set up by employers - may also be case (b) ...
"Ronald Raygun" wrote
Don't forget that the "age-related" rebates increase the amounts involved above 1.6% !
I see no real difference between (a) and (b). In both cases a chunk of your income is diverted to the company scheme or private scheme. The scheme would not qualify for being allowed to contract out unless this chunk were well above the size of the NI rebate. The chunk is generally deducted from your pay by your employer who sends it to the pension company. I suppose it's possible that in the case of a wholly private scheme the NIC people might not trust you to shove at least as much into the private pension fund as you get back from them, but really. Normally the NIC rebate pales into insignifcance compared with what you pay into the pension.
What age related rebate? Once you're past retirement age, yet not retired, you pay no NI at all, so there's no rebate, is there?
"Ronald Raygun" wrote
Well the end result is much the same under either, except that in (a) NI conts are lower whereas in (b) they are standard (higher) - which is what the OP was querying.
"Ronald Raygun" wrote
Eh? For a PP, the chunk is *exactly* equal to the rebate!
"Ronald Raygun" wrote
Well actually - er - No!!
With a traditional final salary scheme, say with 5% (member) contributions, what happens is that the NI conts paid are lower, and an amount equal to the member conts are deducted from pay. This amount is not related in any way to the NI rebate.
In fact, the member contributions *could* be *zero* ! (non-contributory scheme) In that case, no amount is deducted from pay to be sent to the pension scheme, and NI conts are still reduced. Sound good? Well it does happen - but only with generous employers!!
"Ronald Raygun" wrote
If someone contracts out into a PP (actually, an APP) - then the insurance company needs to keep any other contributions separate from the accumulated fund from the NI rebates. [The latter is called "Protected Rights" and has specific features attached to it.]
And yes - the NI rebates *are* paid through the DSS ...
"Ronald Raygun" wrote
Actually, it *is* possible to contract-out into a "MAPP" (minimum approved personal pension). In that case, no extra contributions are paid into the pension - it is used solely for the NI rebates.
The age-related rebates which I am talking about apply well *before* retirement. Get with the program!
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