COSR Pensions

TAX RULES
 

There are rules around how much tax relief someone can get on their contributions to a pension scheme. The rules apply to everyone, no matter what type of scheme they are in or when they joined the scheme.

Employers receive tax relief for their contributions on the same basis as all their other business expenditure.

Individuals can obtain tax relief on their contributions of up to 100% of their UK earnings. Therefore, employers who operate ‘net pay’ through the payroll on employee pension contributions do not need to worry about complex contribution rules.

There is no limit on the amount of pension saving an individual can build up in a registered pension scheme. There are only two key controls – a Lifetime Allowance and an Annual Allowance.

The annual allowance is £245,000 for the year 2009/10. If the increase in the value of an individual’s pension rights or their contributions, (plus any contributions from the employer) exceeds the annual allowance there is a tax charge on the individual at 40% on the excess.

There is also a lifetime allowance (LTA), which is £1.75 million for the year 2009/10. When an individual takes their benefits, if their total pension savings exceed this, they will be taxed on any amount over £1.75 million. This ‘Lifetime Allowance charge’ is set at 25% if the additional savings are taken as a pension, and 55% if taken as a lump sum.

Tax relief is available for individuals on contributions of up to 100% of UK taxable earning (including bonuses, overtime, benefits etc).

What is contracting-out?

Contracting-out is when employees leave the additional State Pension (currently the State Second Pension; prior to April 2002 the State Earnings Related Pension Scheme (SERPS)) and join a contracted-out occupational pension or personal/stakeholder pension instead. They receive a pension from the scheme rather than the additional State Pension. To reflect this, they receive a rebate of National Insurance contributions.

COSR Pension Employee

Pension contracting out is where an individual receives private pension provision in place of some or all of their entitlement to additional state pension (S2P or its predecessors SERPS and the state graduated pension) for particular tax years. Contracting out does not affect an individual's entitlement to the basic state pension.

Part of the national insurance contributions (NI) paid by an individual and their employer pays for their state pension. When an individual is contracted out, they lose some or all of their entitlement to additional state pension (S2P or its predecessors SERPS and the state graduated pension) and make alternative private pension provision.

In recognition of this, the Government reduces the NI liability on earnings between the lower earnings limit and the upper accrual point for these individuals and their employers.

In the COSR Pension, the employee would be placed on D NIC class. Once the COSR pension is applied to the Employee the system will automatically recommend the D class.

COSR Pension Employer

The tax relief can be taken when the pension is sent to the pension company or can be done by the employer. When setting up the pension scheme the employer can opt to give the tax relief there is a Net Pay Arrangement in place.

HMRC also assign a Scheme Contracted-out Number (SCON) to each occupational contracted-out pension scheme. When completing your Employer Annual Return, the SCON must be entered on the form P14 of each employee who is a member of a Contracted-out Money Purchase scheme or a COMP Stakeholder Pension Scheme.

Read more about COSR pensions at the HMRC website http://www.hmrc.gov.uk/nic/cosr-schemes.htm

Setting up a COSR Pension on Bright Pay

To access this utility click “Employer”

1)   Click Add Pension Scheme
       Enter the Name of the policy, (the company that is providing your COSR pension, enter the reference number provide by your
       pension company. 

2)   Choose Type of Pension
       From the dropdown, select COSR pension as your pension type.

3)   Enter your SCON number
       This number is assigned by HMRC and needs to be included in your P35/P14.
       The number must start with an “S” is followed by a “0”, “1”, “2”, “4”, “6”, “8”, followed by 6 number and
       ending with a letter. e.g. S1234567C.

4)    Enter Contact information
       Click the Contact and Payment tab. Enter the Contact information of your COSR pension provider.

5)    Enter Payment information
       Chose from the dropdown how you will be paying over the pensions to your COSR provider.
       If you are paying by credit transfer enter your Pension Companies account details in the box provided.
       You will be able to create a BACS files to send to your bank to automatically transfer the pension fund.

Click Save

Applying the Pension Scheme to your Employees

To apply a pension to your employee Go to Payroll > Double click Employee

ENTER A PENSION DEDUCTION BY AMOUNT:

1)    Under Deductions click Add icon

2)    Select Pensions as the deduction.

3)    From the Drop down, select the COSR Pension scheme type which has been previously set up.

4)    Enter amount for employee's contribution in the box provided

5)    Enter any Additional voluntary contributions in the box provided, if applicable

6)    Enter amount for employer's contribution in the box provided

7)    The total amount entered will be deducted from the employees weekly, fortnightly or monthly Net/Gross pay as appropriate.

ENTER A PERCENTAGE PENSION:

1)    Under Deductions click Add icon

2)    Select Pensions as the deduction.

3)    From the Drop down, select the COSR Pension scheme type which has been previously set up.

4)    Enter amount for employee's contribution in the box provided

5)    Enter any Additional voluntary contributions in the box provided, if applicable

6)    Enter amount for employer's contribution in the box provided

7)    The total amount entered will be deducted from the employees weekly, fortnightly or monthly net/gross pay as appropriate.

8)    To apply a percentage basis click the drop down (beside the amount) and select %

9)    Enter the % amount in the Box provided.

Pay COSR Pension to your Pension Provider

To access this utility (once payroll has been finalised) go to Payroll > Pay Pensions

1)    This report will show the breakdown of the Pension payments to be paid to your pension company.

2)    To print this report click Print

3)    To export the Pensions report click Export (the report can be copied to excel, CSV, XPS or copied to clipboard.)

4)    You can select to print or view the Pensions report for all, some on one employee, select which employees
       you want to run the report for on the right hand side.

Create a BACS File/ Bank Payment File

A Bank payment file can be created to send to your bank by clicking the Create BACS File button.