Evolve pension tax
Crystal operates a ‘net pay’ arrangement, meaning your contributions are taken out of your earnings before they are taxed. (AFAIK this is SMART salary sacrifice)
As your pension contribution reduces your earnings subject to tax, you receive your full amount of tax relief straightaway via PAYE (unless you earn less than the tax threshold, please see the section above ‘What if I don’t pay tax’).
Your pension contribution does not reduce the amount of your wages that are subject to National Insurance Contributions (NI).
example¶
For Example (Monthly Income):
A member receives basic pay of £2,500 a month before tax
They make pension contributions of 5% and receive an employer contribution of 3%.
| BASIC PAY | £ 2,500 | |
| EMPLOYEE CONTRIBUTION (£2,500 X 5%) | - £ 125 | |
| £2,375 | ||
| PERSONAL ALLOWANCE 2019/20 TAX YEAR | - £ 1,041.67 | |
| £ 1,333.33 | ||
| INCOME TAX £1,333.33 X 20%) | - £ 266.67 | |
| £ 1,066.66 | ||
| ADD PERSONAL ALLOWANCE BACK | £1,041.67 | |
| ESTIMATED NI | - £ 214 | |
| NET PAY £ | 1,894.33 | |
| In this example, if no pension contribution was made, then the tax on income would have been £291.67. The level of tax relief achieved amounts to £25.00 meaning the cost of a £125.00 contribution to the member amounts to £100.00. | ||
| If your pension contributions are paid via salary sacrifice by your employer, then tax relief on a ‘net pay’ arrangement does not apply. You won’t pay tax or National Insurance on the sacrificed part of your annual salary. |