Hi, Ref: CMP, Ch5, p.11, bottom paragraph Could you please clarify the mechanics of tax deductibility of pension contributions? I have check my own payslip and it appears that the whole pension contribution is made before tax is removed so unclear about this description of the lifeco recovering part of the tax and the policyholder recovering part?
That is because you have a "salary sacrifice" arrangement with your employer. Not everyone contributing to a personal pension will have such an arrangement in place, for example those who are self-employed or those who work for smaller companies. For example, my husband has to make pension contributions himself out of his net salary. The life insurance company grosses this amount up at the basic rate of tax, so that a higher amount than the amount he has paid goes into the pension policy. If he was a higher rate tax payer, he would then need to claim the additional level of tax relief (in excess of basic rate) through his self-assessment tax return.
