Auto Enrolment Pension Schemes: Relief at Source or Net Pay for arrangement.
Pension Scheme Settings in Opera 3 Payroll:
There are two ways pension schemes can collect the tax relief that savers benefit from when contributing to a pension; Net Pay Arrangement and Relief at Source.
1. Relief at Source This is when the employer deducts the pension contribution from the employee’s net pay, after the employer has deducted PAYE tax, National Insurance, etc. That’s why we call this ‘net’. For example, if a 1% employee contribution is to be paid using this method, the employee pays a contribution of 0.8% and the pension provider reclaims the additional 0.2% from HMRC in respect of basic rate tax. **Please note this does not require you to enter 0.8% Contribution, as Opera is doing this calculation automatically.
2. Net Pay Arrangement This is when the employer deducts the pension contributions from the employee’s gross pay, before PAYE tax is deducted. Using this method, the employee automatically receives tax relief straightaway at their marginal rate.
Adjusting Pension Schemes for employees in Pegasus Opera 3 Open the Pension Scheme window via Payroll > Maintenance > Pension Scheme
Under the General Tab, Scheme Options (circled in orange) - Net of Basic Tax (Ees) – corresponds to the Net of Basic Rate Tax for employees. Below you we show which settings can be applied:
1. Relief at Source > Tick 'Net of basic rate tax’ 2. Net Pay Arrangement >‘Net of basic rate tax’ (Unticked)
Note: Any changes to an existing pension scheme will only affect new employees added. Employees already enrolled on this scheme will need to be manually adjusted. This is because an individual employee’s pension settings will take priority over the general Pension Scheme settings.
You can access an employee’s pension window via Payroll > Processing > Select Group(s) > Select Employee > Action > Pensions > Employee Pensions
Example Calculation: For an employee who earns £26,500 per year it would be £2,208.34 per month.
To calculate the qualifying earnings: £2208.34-LEL (£486)=£1722.34
1.Relief at Source - With net of basic rate tax ticked in Opera and 1% EE contribution Employees contribution=£1722.34 ×(1-0.2)%=£13.78
***Please note that calculations are based on a 20% tax relief. Employees who are higher or additional rate taxpayers then need to reclaim any additional relief through their self-assessment tax returns.
2. Net Pay Arrangement - Without net of basic rate tax ticked in Opera and 1% EE contribution Employees contribution=£1722.34×1%=£17.23
This is just an example of some of the various settings required when setting up Pensions Schemes in Opera 3. We understand Pension setup can be complicated and many users often opt to book a consultancy session to help implement for the first time. If this is something you require please contact us via firstname.lastname@example.org
Please be aware it is always the responsibility of the Payroll users to review their calculations thoroughly and ensure they are happy with the Payroll figures. Please always take a backup before running the Payroll Update.