Adrian Boulding: Untangling the net pay anomaly

‘Net pay’ v ‘relief at source’

clock • 3 min read

Adrian Boulding highlights a wrinkle in the system that has existed since the introduction of personal pensions in 1988 but has now been brought into sharp focus by the large number of low-earners being auto-enrolled

When it comes to terminology, the pensions industry is often its own worst enemy. Nowhere is this more true than when it comes to explaining the difference between ‘net pay' and ‘relief at source' schemes. Contrary to all common sense, relief at source schemes require net contributions while net pay schemes provide immediate tax relief. No wonder, then, that everyone is confused … On the face of it, the net pay method - traditionally used by occupational pension schemes - looks more logical. The tax relief is automatic and it arrives - and can be invested immediately - without the six...

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