Could someone check my SIPP calculation?

7_week_wonder

I've posted before on this board about looking at putting part of a windfall in a SIPP. I think I understand the tax relief rules, but I'd be grateful if someone could cast their eyes over the following and see if my calculations of what contributions I could make are correct:

Gross Salary: 45,066 per annum
My contributions to Employer Pension Scheme: 6.5%
Employer Contributions to Pension Scheme: 16%

Total (Employer plus employee contributions) in current and previous tax years:
2015 – 2016 £10,139.85 (predicted)
2014 – 2015 £9,591.92
2013 – 2014 £7257.95
2012 – 2013 £2823.38

The maximum (gross) that can be contributed this year is £40,000 plus un-used allowances, but capped at my salary for this year. So maximum (gross) that can be contributed is £45,066.
By the end of the year total contributions through employer pension scheme will be £10,139.85. Therefore the remaining contribution I can make to a SIPP is (£45,066 – £10,139.85) = £35,926.15.

I am a basic rate tax payer, therefore I would actually pay 80% of this i.e. £27,940.92.

Does that look right? Many thanks for any pointers.

HappyHarry

Looks correct to me.

Don't forget that you will probably have paid 40% tax on some of your personal contributions. 20% of this tax is claimed by the pension provider on your behalf, but you can claim back the other 20% via self assessment.

zagfles

You've got plenty of annual allowance to carry forwards, so that's not going to be an issue. I presume it's a DC scheme not a DB scheme.

In which case you're only restriction is 100% of earnings - this applies to your contributions only, not employer contributions. So if you earned 45066 and contributed 6.5%, your taxable earnings are 42136, so that's you max gross contribution allowed, so 33708 net into the SIPP.

HappyHarry

Oh dear, I'm being stupid.

zagfles is, of course, absolutely correct.

7_week_wonder

Thanks both Zagflies and HappyHarry for clarifying things - I'd done some reading and research, but obviously not enough!

I'm in a DB scheme (USS scheme) so it looks like I will have to wait for them to get back to me with the calculation of how much my benefits are worth (I contacted them a while back but they've taken ages so far so I was hoping I could calculate it myself).

And thanks for pointing out the most glaring error about only counting my contributions and not my employer's contribution. That's great and means I can put more of the windfall into the SIPP.

zagfles

If it's a final salary scheme you can try the HMRC calculator. http://www.hmrc.gov.uk/tools/annual-allowance/calculator.htm

But best wait till you get the statement from your scheme. You're only likely to have a problem with the annual allowance if you've had any significant payrises above inflation over the last few years.

7_week_wonder

Thanks again Zagfles: alas I'm on a career averaged scheme plus I had a hefty promotion two years ago. So I guess I will just have to bide my time and wait for the statement from my scheme. I chased them today and apparently the statement is definitely on its way.

7_week_wonder

Oh help - this is more complicated than I imagined!
I've now received the paperwork from my pension provider and it shows how much of my annual allowance I have used for previous years. I've looked at the calculations and I understand what is going on.

What I'd like to do is contribute a lump sum immediately, then monthly payments going forward so that at the end of the financial year I've used up all my annual allowance. The problem is that in order to work out how much lump sum I can contribute this year (2015 - 2016) I need to work out how much of this year's annual allowance I'm going to use through me employer pension scheme. That requires me to know what the annual CPI will be at the end of March next year. How on earth do I do that, do I just guess and then contribute slightly less so that I don't go over the limit.?

How on earth do people in DB schemes make sure they contribute their full annual allowance and not exceed it?

zagfles

How much annual allowance have you got spare? What are the figures for previous years?

You can't get tax relief on more than 100% of your earnings so you can't contribute more than 42136 this year, as above. Surely that won't take you anywhere near exceeding this year's annual allowance together with carry forwards from the last 3 years?

Also note that this year is split into two mini tax years as far as the annual allowance goes, if anything this should allow you to contribute more than usual. See https://www.gov.uk/government/publications/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods

But do you really need to worry about the annual allowance?

7_week_wonder

Hi Zagfles,

In previous years I've used
2012 - 2013 £3980
2013 - 2014 £6564
2014 - 2015 £9965

So I agree that my limit is 100% of my salary, i.e. £45,066

Where I'm coming unstuck is working out how much I will have used in my employer's scheme by the end of the financial year.

If I was in a DC scheme I could just do the sum: 6.5% of £45,066. But because I'm in a DB scheme I have to do the complicated sum to work out the increase in the value of my benefits over the Pension Input Period. And that sum seems to need the CPI.

I'm sorry - I'm sure I'm over-complicating this!

zagfles

7_week_wonder wrote: »

Hi Zagfles,

In previous years I've used
2012 - 2013 £3980
2013 - 2014 £6564
2014 - 2015 £9965

So I agree that my limit is 100% of my salary, i.e. £45,066

Where I'm coming unstuck is working out how much I will have used in my employer's scheme by the end of the financial year.

If I was in a DC scheme I could just do the sum: 6.5% of £45,066. But because I'm in a DB scheme I have to do the complicated sum to work out the increase in the value of my benefits over the Pension Input Period. And that sum seems to need the CPI.

I'm sorry - I'm sure I'm over-complicating this!

You have a massive amount you can carry forwards. The AA in 12/13 & 13/14 was £50k, in 14/15 was £40k. Take that off what your PIP's were for those years, you have £119k to carry forwards! Plus at least £40k this year. Your PIP this tax year won't be over £159,000 will it? Unless you get a massive payrise! I can't see why you're worried about the AA.

Your limit is the 100% earnings limit. As above, this is 42136 gross, this is your taxable pay after your pension conts from what you've written above.