Silly question on pension allowance

samscash

I am in a care scheme do I need to gross up the total to remove it off my allowance to work out what I can put in or is that gross?

zagfles

samscash wrote: »

I am in a care scheme do I need to gross up the total to remove it off my allowance to work out what I can put in or is that gross?

OK for a start you need to look at the two pension limits completely separately. There's a lot of simplistic rubbish in the media that tries to combine them eg "100% of earnings subject to £3600 min, £40k max". Ignore such drivel. It is rubbish.

The two limits need to considered separately as they have different rules and apply to different things.

The annual allowance includes employer contributions, it applies over "pension input periods", it can be carried fowards, and for last tax year it was split into two "mini tax years" which usually means you had a £40k annual allowance for the period from 9 July to 5 April. Basically unless you made large pension contributions in previous years the annual allowance is unlikely to be an issue for you.

The "100% of earnings" limit is completely different. It applies over the tax year. It does not include employer contributions, but it does include your contributions to your employer's scheme. It can't be carried forwards. In a CARE scheme your contributions will be taken before tax, so what your see as "taxable earnings" on your payslip or P60 is your earnings after your contributions have been taken off. So this is the number you need.

If you contribute to a personal pension as well, then the max you can contribute gross is 100% of the number on your P60. So max net contribution is 80% of this. So if your P60 was £40k, then your max net contribution to a personal pension was £32k.

bigadaj

samscash wrote: »

I am in a care scheme do I need to gross up the total to remove it off my allowance to work out what I can put in or is that gross?

Your employer should be able to give you the gross contribution, this is probably the only way you will get an accurate figure.

samscash

I contributed via my employer and then started a SIPP. As I had not used my allowances from the last year I whacked my savings into the SIPP without due regard for the fact that I could only put cash in (+the employers amount taken off the allowance according to the HMRC calculator), of 80% of what was left not 100% as I did.

So basically over contributed with respect to salary. What I can't seem to work out is I take my salary, remove the employers pension input, to give me what is left and I should have only put cash in of 80% of what is left (I can ignore allowances as I have too much of those).

Or do I need to gross up what the employer has said the pension input is?

Apologies I am being thick

Allowances inc bfwd is £6000

Salary is say £50000

Pension input from employer is say £8000

to work out the remaining allowance

Do I do

£50000 - £8000= £42000 gross - can put in cash of £33600

OR
£50000 - £10000 (£8000/0.8) = £40000 - can put in cash of £30000?

thanks

zagfles

You're trying to combine the limits. Read my post above carefully.

zagfles

samscash wrote: »

I contributed via my employer and then started a SIPP. As I had not used my allowances from the last year I whacked my savings into the SIPP without due regard for the fact that I could only put cash in (+the employers amount taken off the allowance according to the HMRC calculator), of 80% of what was left not 100% as I did.

So basically over contributed with respect to salary. What I can't seem to work out is I take my salary, remove the employers pension input, to give me what is left and I should have only put cash in of 80% of what is left (I can ignore allowances as I have too much of those).

Or do I need to gross up what the employer has said the pension input is?

Apologies I am being thick

Allowances inc bfwd is £6000

Presume you meant £60,000

Salary is say £50000

Pension input from employer is say £8000

to work out the remaining allowance

Do I do

£50000 - £8000= £42000 gross - can put in cash of £33600

OR
£50000 - £10000 (£8000/0.8) = £40000 - can put in cash of £30000?

thanks

For the purposes of the annual allowance:

Max you can put into the SIPP: £60,000 - £8,000 = £52,000 gross = £41,600 net

For the purposes of the "100% of earnings limit":

£50,000 minus your contributions to the CARE scheme, not the pension input amount. This should be your P60/taxable to date on your last payslip of the tax year as your contributions should already be deducted.

Eg if you contribute 6%, then £47,000 gross, £37600 net.

samscash

Sorry I missed your post due to inefficiency on my part. Just so I don't !!!! this up again, and apologies for being slow, what I understand is this.

Firstly the allowances do not matter as I have way more than I can sensibly use. So my constraint is solely down to salary.

Say, my earnings are £50000 on my P60 as taxable earnings (this is net of the contribution I have put into my pension via my employer scheme). I am using my P60 figure as this is something I can directly see.

For the purposes of the how much I can put into the SIPP using the my earnings as a constraint (as it is lower than the allowance), I can ignore what the CARE scheme inputs are for 2 reasons:

1. The earnings are net of contribution
2. The CARE scheme input is only relevant to work out what allowance I have left.

To work out the maximum cash I can put into a SIPP, I simply take my taxable earnings and ignore any CARE stuff.

Therefore the net cash I can put in is 80% of my P60 figure - £50,000, ie. £40000 , in which case I am fine, as I did not put in that much.

I was getting confused as I was adding my employers pension to what I had put in to work out the max I can put into my SIPP.

I think I have understood correctly and its a huge relief not to have totally cocked up!! THANK YOU VERY MUCH, YOU ARE A STAR

zagfles

samscash wrote: »

Sorry I missed your post due to inefficiency on my part. Just so I don't !!!! this up again, and apologies for being slow, what I understand is this.

Firstly the allowances do not matter as I have way more than I can sensibly use. So my constraint is solely down to salary.

Say, my earnings are £50000 on my P60 as taxable earnings (this is net of the contribution I have put into my pension via my employer scheme).

For the purposes of the how much I can put into the SIPP using the my earnings as a constraint (as it is lower than the allowance), I can ignore what the CARE scheme inputs are for 2 reasons:

1. The earnings are net of contribution
2. The CARE scheme input is only relevant to work out what allowance I have left.

To work out the maximum cash I can put into a SIPP, I simply take my taxable earnings and ignore any CARE stuff.

Therefore the net cash I can put in is 80% of my P60 figure - £50,000, ie. £40000 , in which case I am fine, as I did not put in that much.

I was getting confused as I was adding my employers pension to what I had put in to work out the max I can put into my SIPP.

I think I have understood correctly and its a huge relief not to have totally cocked up!!

That's right. This does confuse a lot of people because of simplistic media articles which try to combine the two limits into one.

zagfles

samscash wrote: »

I think I have understood correctly and its a huge relief not to have totally cocked up!! THANK YOU VERY MUCH, YOU ARE A STAR

You're welcome. Also don't forget to claim extra tax relief from HMRC, your SIPP provider will only reclaim basic rate relief and if your P60 was £50k you'll have paid higher rate tax which you can reclaim.

AnotherJoe

Very useful, thanks to all, I didn't realise the £40k was your contributions only and employers was not taken into account at all.
So if for sake of example, additions to my company DC pension fund last year was £30k, but my employer contributed £15k of that, then I've got another £25k gross I can add in rather than the £10k I thought.