Calculating refund of employer contributions

M

miser

Registered User
Messages
91
I’ve left my occupational Dc scheme with less than two years service. Former employer will be clawing back their contributions. It is what it is.
My question is how is the refund amount calculated- they paid in (say) 10k, with growth over 18 months or so that’s now worth 14k. Will the clawback be 10k or 14k?
Thanks.
 
Your refund will be the current value of your contributions, less 20% tax, regardless of what rate of tax relief you got on your contributions. There's an opportunity for some people to use the tax relief to boost the value of the refund if they're paying tax in the new job at 40%.

Example...

  • Value of your contributions to the old scheme €10,000
  • Less tax at 20% €8,000
  • Put another €5,333 out of your own savings to this and make a contribution of €13,333 to your current employer's scheme
  • Claim 40% tax relief on €13,333 = €5,333 tax relief
  • Amount gone into the pension scheme: €13,333. Net cost to you €8,000 which was the net refund you received.
This only works if you are paying tax at 40% now and have the scope to make a contribution of €13,333 over and above whatever contribution you're already making.
 
Dave Vanian said:
Your refund will be the current value of your contributions, less 20% tax, regardless of what rate of tax relief you got on your contributions. There's an opportunity for some people to use the tax relief to boost the value of the refund if they're paying tax in the new job at 40%.

Example...

  • Value of your contributions to the old scheme €10,000
  • Less tax at 20% €8,000
  • Put another €5,333 out of your own savings to this and make a contribution of €13,333 to your current employer's scheme
  • Claim 40% tax relief on €13,333 = €5,333 tax relief
  • Amount gone into the pension scheme: €13,333. Net cost to you €8,000 which was the net refund you received.
This only works if you are paying tax at 40% now and have the scope to make a contribution of €13,333 over and above whatever contribution you're already making.
Click to expand...
Still waiting on the leaving service options letter from the pension administrator but was hoping to be allowed to keep my own contributions in the fund or transfer them to my new employers scheme… will be totally sickened if I not only lose the employer contributions but also half the tax relief on my own contributions (I got 40% relief on these)
 
It's the other way around. You got tax relief at 40% on the way in, but are only charged 20% on the way out. It would actually be efficient tax planning to max your pension contributions and switch employers every 2 years (albeit you'd end up with no pension fund).
 
miser said:
Still waiting on the leaving service options letter from the pension administrator but was hoping to be allowed to keep my own contributions in the fund or transfer them to my new employers scheme… will be totally sickened if I not only lose the employer contributions but also half the tax relief on my own contributions (I got 40% relief on these)
Click to expand...

In my example above, if you are allowed to simply transfer the value of your pension contributions to your new employer's scheme, you'd get €10,000. By taking the refund and grossing up on the tax relief, you'd be putting €13,333 into the new employer's pension scheme.
 
You must log in or register to reply here.
Back
Top