Maximum DC pension contribution allowable?

Dee140157

Due to a combination of life events, some planning and some good fortune out of bad events, we are in the situation that when we retire our joint income will be about £8k more (before tax) than it is now and we currently live a comfortable life (OH and I are early 50s).

After a few years work break and a complete change of career I am currently working p/t in a fairly low paid job which I enjoy. I only earn £5000 per year. The company has a good DC pension scheme, (not actually sure which, but know but it's Standard Life and I get £28 added to the £20 a month I pay in with tax relief and employer contributions etc). I haven't been in this long as I was only able to join 7 months ago when I had worked there long enough.

Now my simple question is, how much would I be allowed to pay into ths pension scheme? It seems a great way to build up a nest egg for retirement (which to be honest will probably be blown as we will have enough to live on). I can afford to increase the £20 significantly, but did not know if there was a % limit. The changes in the rules seem to make this a much better form of saving that continuing to put into my ISAs.

OldBeanz

You can invest £5k (your whole income) into a pension. This includes employer contributions and tax relief so you are already paying 12*£28.

Linton

OldBeanz wrote: »

You can invest £5k (your whole income) into a pension. This includes employer contributions and tax relief so you are already paying 12*£28.

Confused by wording. Surely you mean that the OP can pay his full £5K income into the pension. This will be incremented by the employer contribution.

On the tax side though things are less clear to me - the HMRC website doesnt help in this case. If this £5K is the OPs only income and the pension is paid out of gross salary then I dont see that any tax relief will be due. But the pension will presumably be taxed when money is paid out. On the other hand if the pension is paid out of net salary then a rebate of the non-existant tax will be paid by HMRC into the pension.

If the pension is paid out of gross salary the OP might be best advised to just pay sufficient into the employers scheme to get the maximum employer contribution and to pay £2880 into a private pension and get the special tax relief due to private pension contributions by non-tax payers to avoid paying in untaxed money to a pension when extracting the money will be taxed.

Or am I confused???? If the OP is a tax payer it doesnt matter anyway.

xylophone

http://www.accountingweb.co.uk/anyanswers/tax-relief-personal-pension-contributions-low-earner

"Your client may invest up to the total of their earnings (before deduction of personal allowance) in a pension scheme but will pay this net of basic rate tax. In your example where the earnings are £6K, she can make pension contributions of up to £6K gross (£4,800 net) and HMT will add £1,200 to her pension pot and she will pay no tax.

Your client may make a net contribution of £2,880 and HMT will add £720, whether or not she has any earnings.

Incidentally the relief is given by extending the basic rate band rather than but deducting the amount from earnings."

Linton

xylophone wrote: »

http://www.accountingweb.co.uk/anyanswers/tax-relief-personal-pension-contributions-low-earner

"Your client may invest up to the total of their earnings (before deduction of personal allowance) in a pension scheme but will pay this net of basic rate tax. In your example where the earnings are £6K, she can make pension contributions of up to £6K gross (£4,800 net) and HMT will add £1,200 to her pension pot and she will pay no tax.

Your client may make a net contribution of £2,880 and HMT will add £720, whether or not she has any earnings.

Incidentally the relief is given by extending the basic rate band rather than but deducting the amount from earnings."

Yes but I think this just applies to private pensions. With employer pensions where the payment is made gross some other process must apply.

Dee140157

Thank you for the replies. I do pay tax on part of my pay as I have another income that is taxable.

Although I could pay all my salary in, I probably won't. ( I want to enjoy life now not just when I retire). But I will certainly up it to about £100 a month now since it seems 25% is definitely allowable. This will build a nice nest egg I can take in 4 years time or later and is better now than saving in an ISA with my employers contributions.

Still confused somewhat by it all, but figure I am in a good place compared to many so am not going to worry too much.