Workplace Pension Schemes

Which pension provider you chose to use will dictate the type of pension you operate. Here’s a brief overview of the main types of pension on offer.

Relief at Source (RAS)

As used by the more traditional pension companies and also mainly used by Nest and People’s Pension.

Contributions are deducted from pay after tax and National Insurance has already been deducted. For every 80 pence you pay, the pension company claims a further 20 pence (the basic rate of tax) from HMRC and adds it directly to the pension pot.

Relief at source pensions are particularly useful for those employees who do not earn enough to pay tax as the 20% relief uplift is still added to their pension fund.

Net Pay Arrangements (NPA)

As favoured by the likes of Smart and Now.

Unlike a relief at source deduction, a NPA reduces the gross pay amount that is subjected to tax. The employee ends up with more in their pocket, but less in their pension.

Historically, as a net pay arrangement reduces an employee’s tax liability, it was not suited to those employees who fall below the tax threshold. However, from April 2024 the government sought to re-dress this and it is now the responsibility of HMRC to make annual top-up payments directly to eligible individuals. The NPA is also known as the gross tax basis as contributions are taken from the gross pay.

Salary Sacrifice

Although far from being a default policy, most pension companies offer salary sacrifice pension options.

Salary sacrifice schemes are formal agreements where an employee’s salary is reduced and the employer pays that exact amount directly to the pension scheme. The employee therefore pays less tax and National Insurance thereby keeping more money in take home pay. The employer National Insurance is also reduced and many employers opt to add this to the pension pot.

From April 2029, a £2,000 annual cap on National Insurance exempt pension contributions made via salary sacrifice comes into force.