Help Centre for Employers

How does the net pay top up work?

There are two ways pension schemes can collect the tax relief that savers benefit from when contributing to a pension; net pay and relief at source.

In common with the majority of trust based pension schemes, NOW: Pensions operates a net pay arrangement which means that pension contributions are collected from earnings before income tax is calculated and applied. This means for taxpayers, full tax relief at the highest rate is automatic and no income tax is paid on the money being contributed to a pension.

The alternative system is called relief at source. Here, employers take 80% of an individual’s pension contribution from their take home pay, i.e. after income tax has been deducted. The tax relief is then reclaimed from HMRC by the pension scheme, who send in a monthly request and get the cash back about six weeks later. HMRC only sends back the basic rate of tax, namely 20%.

Where an employee in a scheme operating relief at source is a higher or additional rate taxpayer they can claim back the rest of the tax relief themselves from HMRC either by writing to them separately, or through their annual self-assessment tax return.

In a net pay arrangement, employees that don’t pay income tax, do not get tax relief on their pension contributions from the government.

In relief at source schemes, all savers receive tax relief even if they don’t pay income tax. The government is considering how to address this inequality, but in the meantime, earlier this year NOW: Pensions committed to ensuring those who do not pay income tax are treated fairly by topping up the tax relief shortfall for such scheme members in respect of the 2015/16 tax year. NOW: Pensions is the only net pay scheme offering a top up.

Individuals who pay into the NOW: Pensions scheme and have total earned income for the 2015 / 2016 tax year of less than £10,600 per annum, may be eligible to receive our top up.

The form to fill in to make a claim for the tax relief top up can be completed here. Forms must be completed and submitted by midnight on Monday 1st May 2017.

We have prepared a template letter for employers to send to employees who they think may be eligible which can be downloaded here.

Related resources 

What’s the difference between net pay and relief at source?

What do I do if I have calculated the incorrect tax relief on employee pension contributions?

 

 

I firmly believe in NOW: Pensions' principle that everyone deserves the right to a better retirement. I look forward to being part of the team which aims to achieve this in the UK. — Win Robbins, former Head of European Fixed Income Barclays Global Investors
I'm excited by the opportunity to help bring to the UK auto-enrolment market NOW: Pensions, a customer-friendly and responsive trust-based alternative to NEST and to contract-based offerings. — Chris Daykin, the former Government Actuary
...its simple design means the pressure is taken off us as the employer and avoids costly administration charges, whilst removing the burden of choice and ensuring the best possible retirement outcome for our employees. — Matthew Johnson, Head of Compensation and Benefits at Adecco Group UK & Ireland
ATP comes to the UK pensions world with the highest commendations from the Danish trade unions, employers and government. NOW: Pensions' offering in the UK will be high quality, low cost, and honest and I'm proud to be associated with it. — John Monks, member of House of Lords and former General Secretary of ETUC and TUC
Over a short period of time, NOW: Pensions has established itself as a respected and credible player in the UK workplace pensions market attracting thousands of employers and hundreds of thousands of members. Joining the team at such a crucial time… — Jocelyn Blackwell, Founder of Dunnett Shaw and Raising Standards in Pensions Administration