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How to process a pension refund manually through Enter Payments

Created on  | Last modified on 

Summary

Process a pension refund using Enter Payments in Sage 50 Payroll.

Description

Sometimes you need to refund pension contributions manually. For example, if you process an opt-out request but didn't issue the refund at the time.

Resolution

Pay the refund using a pay element that adds the refund in the same way the pension scheme deducted it. This is to ensure your employee pays the correct tax.

Follow this article to:

  • Check your pension scheme
  • Enter the correct pay element settings based on your pension scheme
  • Pay the refund
  • Update the employee's year to date values
  • Find out about reporting implications

Check your pension scheme

Your employee's pension scheme settings affect the pay element settings you need to use to refund the contributions.

If you're not already certain whether your scheme is salary sacrifice, deduct before tax or deduct after tax, you need to check.

Follow the steps below to check your scheme.

  1. Select Company, then Pension Schemes.
  2. Choose the pension scheme assigned to the relevant employee, then select Edit.
  3. Select OK on the message that appears.
  4. On the Details tab of the pension scheme, check whether the checkbox beside Salary Sacrifice is selected. If it is, skip ahead to Step 7, if not, continue to Step 5.
  5. Click the Employee tab of the pension scheme,
  6. Under the Settings section, note whether the checkbox beside Deduct Before Tax is selected, or clear.
  7. Follow the pay element settings section below for the settings to use on your pension refund pay element.

Pay element settings

Click the option below that matches how your pension scheme calculates.

▼ Salary sacrifice scheme - the Salary Sacrifice checkbox is selected

Your software deducts pension contributions before calculating tax and NI.

To refund this, set up a pre-tax, pre-NI payment.

▼ Deduct before tax scheme - the Deduct Before Tax checkbox is selected

Your software deducts pension contributions before calculating tax, and after calculating NI.

To refund this, set up a pre-tax, post-NI payment.

▼ Deduct after tax scheme - the Deduct Before Tax checkbox is clear

Your software deducts pension contributions after calculating tax and NI.

To refund this, set up a post-tax, post-NI payment.

If you don't already have a suitable pay element to process the pension refund, set one up.

Ensure you apply the correct pre or post-tax and NI settings to this payment as confirmed above.

For help with creating your pay element, follow the set up pre and post-tax and NI pay elements article.

Process the refund

You're now ready to process the refund in Enter Payments.

  1. Follow our assign payments to an employee article to assign your pension refund pay element to them.
  2. Click Payroll then Change Process Date.
  3. Enter the date for your pay run.
  4. Select this employee on your employee list, and click Enter Payments.
  5. Enter the refund amount on the pension refund pay element.
  6. Enter any other payments for all employees and complete the pay run as normal.

You've now processed the pension contribution refund. Complete the section below to update pension year to date values.

Update pension YTD values

After you process a pension refund, amend the year to date values for the pension scheme in the employee's record.

This is necessary because since you refunded contributions, the existing year to date values aren't correct anymore.

You don't need to refund your Employer pension contribution in Enter Payments. To document the Employer refund in your payroll software, clear or lower the YTD values as applicable.

NOTE:

Ensure you record the employer refund in your accounting software.

The steps you need to follow depend on whether there's more than one pension scheme assigned in their employee record.

▼ If it's the employee's only pension scheme
  1. Double-click the relevant employee on your employee list, then click the Employment tab.
  2. Select YTD Values, then Other YTD.
  3. Under the Pension heading, amend the values in the pension boxes beneath as below:
    • If you refunded all pension contributions, clear the YTD values
    • If you refunded part of their contributions, reduce the value by the amount you refunded

      NOTE:

      Don't clear any values under the Other heading, as they don't relate to pensions.

  4. Select Save, then Close.
▼ If the employee has multiple pension schemes assigned
  1. Select Employee.
  2. Double-click the relevant employee on your employee list, then click the Employment tab.
  3. Select YTD Values, then go to the Pension tab.
  4. Amend the values for the relevant pension scheme as below, if you refunded:
    • All pension contributions, clear the YTD values
    • Part of their contributions, reduce the value by the amount you refunded
  5. Select OK, then Save.
  6. Select Close.

You've now processed the refund and the year to date values no longer appear on any payslips or reports.

Reporting/nominal link implications

Reporting

The steps above helped you refund the pension contributions using a pay element rather than the pension module opt-out function. Due to this, the refund values don't appear on your reports as a pension rebate.

The pension values on your reports return the values you processed in each period. The amendments you made to year to date values while refunding the payments don't change the values on these reports.

Employer contribution values on your reports change to match any edits you made to year to date values.

Nominal link

If you use nominal link, you need to enter the refund values as manual journal entries in your Accounts software.

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