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    • paulpud
    • By paulpud 12th Jul 17, 9:21 AM
    • 281Posts
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    paulpud
    Queries on pension annual allowances
    • #1
    • 12th Jul 17, 9:21 AM
    Queries on pension annual allowances 12th Jul 17 at 9:21 AM
    For the past 18 months my partner and I have both been contributing to our workplace pensions which allow us to make additional payments whenever we want to. I've done a fair bit of internet searching but I'm still to be 100% certain of just how much we can pay into them to benefit fully from tax relief.

    We both currently pay £336 per calendar month from our net pay and get tax relief of £84 making personal monthly contributions £420 / £5040 per year each.

    Our employer contributes £42 per month to my pension and £21 per month to my partner's but we don't receive tax relief on these so my total contribution is £462 pcm / £5544 pa and my partner's is £441 pcm / £5292 pa.

    For the current 2017/2018 financial year my salary will be 43K and my partner's 23k so, if I have understood what I have read correctly, I can pay in up to 40k including tax relief/employer's contributions and my partner 23k including tax relief but excluding employer's contributions. Is this correct?

    A second query I have is on our employer's contributions; as we don't receive tax relief on these do they need to be considered as contributions towards the annual allowance?

    My final query is regarding carry forward. We are both looking to make additional payments this financial year but haven't paid much into pensions in previous years. Am I right in thinking that we can both carry forward unused allowances from the past 3 financial years and, in my partner's case, would her unused allowance be her salary for that financial year less anything she paid into her pension?
Page 1
    • Linton
    • By Linton 12th Jul 17, 11:16 AM
    • 8,228 Posts
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    Linton
    • #2
    • 12th Jul 17, 11:16 AM
    • #2
    • 12th Jul 17, 11:16 AM
    Query 1: Your understanding is correct, apart from the additional amount that may be available from carry forward.

    Query 2: Employers contributions count against the £40K allowance but not the earned income one.

    Query 3: Incorrect, carry forward only applies to the £40K allowance, not the earned income one.
    • AlanP
    • By AlanP 12th Jul 17, 12:47 PM
    • 900 Posts
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    AlanP
    • #3
    • 12th Jul 17, 12:47 PM
    • #3
    • 12th Jul 17, 12:47 PM
    A useful online tool can be found here:

    http://www.hl.co.uk/pensions/interactive-calculators/carry-forward-annual-allowance-calculator
    • zagfles
    • By zagfles 12th Jul 17, 12:57 PM
    • 12,263 Posts
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    zagfles
    • #4
    • 12th Jul 17, 12:57 PM
    • #4
    • 12th Jul 17, 12:57 PM
    The thing that confuses people is that there are two completely separate limits with completely separate rules.

    1) You have an annual allowance of £40k. This includes employer contributions. Unused allowance can be carried forwards from the last 3 tax years. For years prior to 2015/16 it was measured over "pension input periods" which didn't always align with the tax year, there were transitional arrangements in 2015/16.

    2) You have a tax relief limit of 100% of earnings or £3600 if greater. This doesn't include employer contributions. This can't be carried forwards. It always applies over the tax year.

    Ignore any simplistic drivel you might read which tries to combine the limits into one (eg earned income with min of £3600 and max of £40k), that sort of rubbish causes all the confusion.
    • zagfles
    • By zagfles 12th Jul 17, 12:59 PM
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    zagfles
    • #5
    • 12th Jul 17, 12:59 PM
    • #5
    • 12th Jul 17, 12:59 PM
    Though note that applies to the annual allowance only, not the earned income/tax relief limit.
    • paulpud
    • By paulpud 12th Jul 17, 2:15 PM
    • 281 Posts
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    paulpud
    • #6
    • 12th Jul 17, 2:15 PM
    • #6
    • 12th Jul 17, 2:15 PM
    The thing that confuses people is that there are two completely separate limits with completely separate rules.

    1) You have an annual allowance of £40k. This includes employer contributions. Unused allowance can be carried forwards from the last 3 tax years. For years prior to 2015/16 it was measured over "pension input periods" which didn't always align with the tax year, there were transitional arrangements in 2015/16.

    2) You have a tax relief limit of 100% of earnings or £3600 if greater. This doesn't include employer contributions. This can't be carried forwards. It always applies over the tax year.

    Ignore any simplistic drivel you might read which tries to combine the limits into one (eg earned income with min of £3600 and max of £40k), that sort of rubbish causes all the confusion.
    Originally posted by zagfles
    Yes, I think this is what is causing the confusion for me as I've read lots about the 40k annual allowance but very little regarding the earned income limit, and I've yet to find a calculator that includes it.

    So, if I am understanding this correctly, we can both carry forward our unused allowances and claim tax relief, but only if our earnings for the current tax year allow it?

    So in my case, on a 43k salary, I could use 3k of unused allowance but my partner, on 23k, can't use any?
    • zagfles
    • By zagfles 12th Jul 17, 2:51 PM
    • 12,263 Posts
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    zagfles
    • #7
    • 12th Jul 17, 2:51 PM
    • #7
    • 12th Jul 17, 2:51 PM
    Yes, I think this is what is causing the confusion for me as I've read lots about the 40k annual allowance but very little regarding the earned income limit, and I've yet to find a calculator that includes it.

    So, if I am understanding this correctly, we can both carry forward our unused allowances and claim tax relief, but only if our earnings for the current tax year allow it?

    So in my case, on a 43k salary, I could use 3k of unused allowance but my partner, on 23k, can't use any?
    Originally posted by paulpud
    Basically for your partner on a £23k salary the annual allowance is totally irrelavant, she won't get anywhere near it, she can forget about it. Her only constraint is the earned income limit. So she can put £23k gross into a pension, minus any contributions she makes to her employer's scheme. So net amount would be 80% of this. As above no carry forwards is allowed for this limit.

    For you - you need to consider both limits.

    So the earned income limit - £43k minus whatever you pay into your employers pension. No carry forwards.

    The annual allowance - £40k including both your and your employer's contributions. If it's a DC scheme, the employer's contribution is the amount they put in. If it's a DB scheme then it's more complicated. You can carry forwards from the last 3 years as long as you were in a pension scheme those years.

    Assuming you were and didn't make large pension contributions in those years, the annual allowance isn't likely to be an issue for you either. So your constraint would be the earned income limit too. The annual allowance would only be an issue if you wanted to contribute nearly all your salary for the next few years.
    • paulpud
    • By paulpud 12th Jul 17, 3:19 PM
    • 281 Posts
    • 147 Thanks
    paulpud
    • #8
    • 12th Jul 17, 3:19 PM
    • #8
    • 12th Jul 17, 3:19 PM
    I think I've got it, thanks.

    Although, based on our salaries, it seems like we won't be affected by the allowances too much, we have been adding to our pensions from our savings to take advantage of the tax relief so I wanted to know just how much we could put into them efficiently.
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