Pension contribution - was is included in the £40k yearly limit?

bavli

I have a question about the £40k annual pension limit.

My salary is £101k. At the moment I am putting £26,400 into my pension directly from my salary. My pension provider adds another £6,600 (20%) and I get another £6,600 (20%) via my adjusted tax code over the year. So 40% relief altogether. The company I work for contributes 4% of any contribution I make, so they add another approx £3k inside my pension fund.

The question I have regarding the £40k annual pension limit is whether the tax relief also counts towards the limit or just my net pension contribution (i.e. £26,400) and my employers contribution (£3,000) equaling a total of £29,400. Obviously if the tax relief is included then it will take my pension contribution over the limit.

I would like to increase the net contribution to £31,400 but I want to make sure this will not take me over the £40k limit. Can anyone confirm whether the relief is included in the £40k cap or not? Thanks.

Linton

The £40K is the total gross contribution into your pension from all sources. So in your example it's the £26400 uprated by 20% basic relief (£33000) plus the employers £3K=£36000. The taxcode higher rate relief doesnt count because it doesnt go into your pension.

Triumph13

bavli wrote: »

The company I work for contributes 4% of any contribution I make, so they add another approx £3k inside my pension fund.

Something wrong there methinks. £3k is 4% of £75k no 4% of either your gross or net number. You need to work out exactly what they are paying 4% of to be able to work out what your maximum contribution is.

dunstonh

Pensions are always looked at as gross contributions when dealing with limits. Not net.

BoxerfanUK

Just to clarify this, say for arguments sake employer contributes 5K and the employee contributes 35K gross via salary sacrifice is that ok for the 40K limit?

HappyHarry

BoxerfanUK wrote: »

Just to clarify this, say for arguments sake employer contributes 5K and the employee contributes 35K gross via salary sacrifice is that ok for the 40K limit?

Yes.

Your employer must make sure that you are not salary sacrificing to below minimum wage.

ThinkingOutLoud_2

HappyHarry wrote: »

Yes.

Your employer must make sure that you are not salary sacrificing to below minimum wage.

I don't think this is right.

Minimum wage has NO bearing on this.

You can contribute up to 100% of earnings, subject to that gross contribution limit.

Your employer is still paying you minimum wage or higher. But you are choosing to put it all direct into your pension.

If you do not earn then you can pay in £3,600 gross.

jamesd

You can also carry forward unused annual allowance from the past three tax years provided you were in any pension scheme.

ThinkingOutLoud_2

http://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/how-much-can-i-pay-into-a-pension

zagfles

ThinkingOutLoud wrote: »

I don't think this is right.

Minimum wage has NO bearing on this.

You can contribute up to 100% of earnings, subject to that gross contribution limit.

Your employer is still paying you minimum wage or higher. But you are choosing to put it all direct into your pension.

If you do not earn then you can pay in £3,600 gross.

Yes it is. You can't salary sacrifice below NMW. You can pay in using "net pay" or RAS to below NMW but not sal sac.

HappyHarry

ThinkingOutLoud wrote: »

I don't think this is right.

Minimum wage has NO bearing on this.

You can contribute up to 100% of earnings, subject to that gross contribution limit.

Your employer is still paying you minimum wage or higher. But you are choosing to put it all direct into your pension.

If you do not earn then you can pay in £3,600 gross.

I respectively disagree.

By using salary sacrifice, your employer is paying you less money and making a larger employers contribution on your behalf.

Your remaining salary must remain above minimum wage.

If you make a personal contribution, you are able to make as large a contribution as you want, up to the limits, with no regard for minimum wage.