Payroll for pension schemes

Produced by Tolley in association with

Employment Tax

Guidance

Introduction

In general terms, running payroll for pension schemes is no different than running PAYE for employees. Pensions are treated as income for PAYE and so pensioners are issued with a tax code (see the PAYE notices of coding guidance note) and tax is deducted accordingly.

The major difference between a ‘pensioner payroll’ and an ‘employee payroll’ is that no NIC is due on pensions (this is on the assumption that the pension is being paid from a pension scheme registered with HMRC).

Deductions from pensions

Apart from NICs, other deductions, with one further exception, can be made from pension payments in the same way as they are taken from earnings.

Attachment of earnings orders (AEO)

Pensions are treated as earnings for AEO purposes. Thus, AEO may be received in respect of pensioners.

Voluntary deductions

The pension payer needs authorisation from the pensioner in order to take voluntary deductions from the pension, see the Income and deductions guidance note.

Student / postgraduate loans

The calculation for a student loan deduction (SLD) /

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Vince Ashall

Payroll Consultant & Trainer at VA Payroll Services

Involved in payroll for more years than I care to remember! Initially in the NHS, where i oversaw the development of the NHS's bespoke payroll system (SPS Standard Payroll System), and latterly in the private sector. Served for 13 years as a MNT for a private sector defined benefit pension scheme. Have had articles published in payroll publications and and provide updates for various publishers. Fellow of the CIPP and gained a MSc in Payroll & Business Management in 2002. Now a self employed payroll and pensions consultant

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