This article should help you have better clarity on how your money is handled.
Since much of what happens with a pension occurs without you needing to take action, it can be difficult to understand what happens with your money.
How you pay into Creative Pension Trust
Because we work directly with your employer, both your and their contributions to your pension are collected automatically. This can be done in one of two ways:
- Net pay arrangement – In this method, each time you are paid your contribution is added before income tax to the government is calculated.
- Salary exchange (salary sacrifice) arrangement – In this method, an agreement has been made to exchange a part of your salary for something else (in this case, a pension contribution). Because this affects your earnings, you pay less in National Insurance.
How your money is collected and where it goes
Creative Pension Trust works directly with your employer to collect both the contributions that you make and the money that they contribute. This process happens automatically, so there isn’t anything that you will need to do in this situation. You will be able to continue to save regularly without having to take action. The money can be collected in one of two ways: a net pay arrangement or a salary exchange (salary sacrifice) arrangement. You can check with your employer to see which one applies to you.
When your money is collected by a net pay arrangement, it is taken before income tax is calculated, which means that you won’t be taxed on that portion of your pay, benefiting from tax relief instantly. This tends to be the standard way in which Creative collects your contributions. Regardless of whether you are a basic rate taxpayer or a higher rate taxpayer, you will not need to pay tax on what you pay into your Creative Pension Trust pension.
By contrast, some employers elect to make contributions through a Salary Exchange arrangement. This scenario means agreeing to give up some of your earnings for pension contributions. This arrangement means that you will end up paying less National Insurance because you have reduced your earnings. With a Salary Exchange arrangement, the cost of saving regularly is even less than that of a net pay arrangement. Again, you will still have the benefit of having tax relief without the fuss of filling in a self-assessment tax return.
No matter how your money is collected by Creative Pension Trust, we take great care to make this process simple and easy-to-manage for you. Once your contributions are collected, they are then invested into your pension account where they can grow over the long term.