Troubleshooting Relief at Source Pension Calculations

If an employee's pension contribution appears incorrect, or a pension provider reports a discrepancy, first check how the contribution has been calculated and whether the employee's tax relief settings match in both UK Payroll and the pension provider.

Before reviewing the calculation, check the pension thresholds configured in Company settings > Pensions. If your pension scheme uses qualifying earnings, pension contributions are calculated only on earnings between the lower and upper qualifying earnings thresholds. This means the pension contribution may be lower than expected if you're comparing it with the employee's total earnings.

For example, if the lower qualifying earnings threshold is £520 and the upper qualifying earnings threshold is £4,189, an employee earning £5,000 in the pay period will only have £3,669 (£4,189 − £520) treated as qualifying earnings.

If the employee contributes 4%, the pension contribution will be calculated as:

• Qualifying earnings: £3,669
• Employee contribution: 4% = £146.76

Rather than:

• Total earnings: £5,000
• Employee contribution: 4% = £200.00

This is expected behaviour, as only qualifying earnings are used when calculating pension contributions for schemes that use qualifying earnings.

If the employee is enrolled in a relief at source (RAS) pension scheme, UK Payroll then:

1. Calculates the employee contribution using the configured pension percentage.
2. Checks whether the employee is eligible for UK tax relief.
3. If the employee is eligible, deducts the employee contribution minus the basic-rate tax relief from payroll.
4. The pension provider adds the tax relief back to the pension contribution after the pension file is submitted.

For example:

• Pensionable earnings: £4,583.33
• Employee contribution: 4% = £183.33
• Basic-rate tax relief (20%): £36.66
• Amount deducted from payroll: £146.67

Although the payroll deduction is lower than 4%, the employee is still contributing the full 4%. The remaining amount is added by the pension provider as tax relief.

If another employee has the full 4% deducted, check the Tax relief setting on their Pension tab.

• Yes – The employee is eligible for UK tax relief, so the payroll deduction is reduced by the tax relief amount.
• No – The employee is not eligible for UK tax relief, so the full contribution percentage is deducted from payroll.

If the calculation in UK Payroll looks correct but your pension provider reports an error, verify that the employee's tax relief settings match in both systems.

For example, in Nest:

1. Go to Manage workers and open the employee's profile.
2. Edit the section containing the employee's National Insurance number and UK tax relief eligibility.
3. Confirm that the UK tax relief eligibility setting matches the Tax relief setting on the employee's Pension tab in UK Payroll.

Note: The location of this setting may vary depending on your pension provider.

If the employee is eligible for UK tax relief, make sure they are marked as eligible in both the pension provider portal and UK Payroll.

If the employee is not eligible for UK tax relief, update the Tax relief field on the employee's Pension tab in UK Payroll to No, and ensure the same setting is reflected in the pension provider.

If these settings do not match, the pension provider may flag the contribution because it does not expect relief at source to have been applied. Once the settings are aligned, the discrepancy should be resolved.