£32,000 Annual allowance?

GLR99

The Pension advisory service website says "The annual allowance is a limit on the total amount that can be paid into your pension scheme(s) each year and still receive tax relief". This is not true.
I put £35,000 into my SIPP last year from my post tax income and I'm told that I cannot get tax relief on any more than £32,000, because the £40k is the "gross contribution" i.e. INCLUDING the tax relief.
The government's wording is misleading at best.

Is this correct?

Linton

The pension advisory service website is precise and correct. The maximum is £40K. The wording is "paid into your pension" and it doesnt say who by. It includes employers and HMRC themselves.

If you pay £32K net £40K total will be paid into your pension, £8K of which is tax refund from HMRC.

zagfles

Unless you've paid that some of amount for the last 3 tax years, you're likely to have some carried forwards you can use. Assuming you were in a pension scheme in the previous years.

Watch out for the earned income limit too - you can't get tax relief on your contributions over 100% of your earnings (yes and that's gross too).

GLR99

It's certainly not "Precise" !!! What you've written is clear and precise but the PAS website certainly is not.

It says "The annual allowance applies across all of the schemes you belong to, it’s not a ‘per scheme’ limit and includes all of the contributions that you or your employer pay or anyone else who pays on your behalf"

No mention of gross contributions or "including tax relief" .....

What happens if I make a £35,000 payment into my SIPP and the tax relief doesn't appear in the account until the following tax year. Have I breached the £40,000 limit?

zagfles

GLR99 wrote: »

It's certainly not "Precise" !!! What you've written is clear and precise but the PAS website certainly is not.

It says "The annual allowance applies across all of the schemes you belong to, it’s not a ‘per scheme’ limit and includes all of the contributions that you or your employer pay or anyone else who pays on your behalf"

No mention of gross contributions or "including tax relief" .....

Well complain to them then, no point whinging about it here. They have a feedback page: https://www.pensionsadvisoryservice.org.uk/about-us/our-website/site-feedback

What happens if I make a £35,000 payment into my SIPP and the tax relief doesn't appear in the account until the following tax year. Have I breached the £40,000 limit?

Yes. It's when you make the payment that counts, not when the tax relief goes in.

But like I said above, you might have carry-forwards you can use.

GLR99

Cheers. I have made a complaint to the PAS and luckily have carry forward to use.

dunstonh

In financial terms, pension contributions are normally discussed as being gross. However, there have been increasing attempts to either dumb down or simplify (depending on your point of view). This can actually create more problems sometimes.

So, in this case, the annual allowance is £40,000. That is the textbook answer you would expect to see. However, on consumer sites, they often talk net of basic rate tax rather than gross.

You often see people talk about getting 25% tax relief and they really mean 20%. They are seeing the tax relief as an add on but it is not an add on. This method has increased as DIY providers do not prefund the tax relief whereas historically (and still is with most advised pension) you got prefunding of tax relief. The latter looks like tax relief but adding it 6 weeks later looks like an add on.

Personally, I think that if that is what the PAS say, then they could improve it.