Annual Pension Contribution Questions

Vanadium3360

Hi

The pension annual allowance is the lower of £40000 and 100% of relevant UK earnings. (yes/no)

My reference salary is £40538 and after a high salary sacrifice was reduced to a salary of £22417 (P60 value).

Now in the tax year 16/17 I have contributed £23142 into my DC pension.

The level of salary sacrifice was permitted at work so no issue there. The pension man said on his annual visit you could reduce your salary but not to less than minimun wage (£7.5 x 40 x 52 = £15600).



Have I overpaid into my pension ?

If not how much could I have contributed in that tax year ?


Please advise

cheeky

just been discussing this (see my post a page or 2 down)

you have to take £1300pm salary via salary sacrifice - ive been speaking to the payroll manager so guess our system wont let me "pension" less than this per month. But every £680 you contribute gains £120 NI and £200 tax

SIP shares, child vouchers must be subtracted 1st and overtime/misc payments cant be counted either or id have another £400pm to chuck in!!

Linton

The £40K limit refers to total gross contribution including that from both you and your employer. The reference salary limit is your gross contribution only. Money paid from salary sacrifice is an employer contribution. You have asked your employer to reduce your salary and to increase their contribution to your pension.

Given your pre Salary Sacrifice salary is over £40K, you can now contribute enough from your taxed salary, perhaps into a private pension, to bring the gross up to £40K. You actually pay in 80% of that amount and HMRC add the rest.

cjking

The "100% of relevant UK earnings" does not apply in the case of salary sacrifice, which are employer contributions. That limit only applies to personal contributions.

To repeat the question, I think you are saying that your employer has contributed £40,538-£22,417=£18,121 to your pension, and you have contributed £23,142. £18,121+£23,142=£41,263, slightly more than the 40K limit. (I assume £23,142 is grossed up, so you actually put in 80% of that.) If I've understood correctly, it looks like you have contributed £1,263 more than the annual allowance. But that might be OK if you have some unused allowance from previous years to carry forward.

I think the most you could have contributed is min(40000-18121,22417)=min(21879,22417)=21879. Actual net contribution 80%*21870=£17,503.

cjking

You could increase your salary sacrifice to £40,538-£15,600=£24,938. Then the maximum personal contribution would be min(40000-24938,15600)=min(15062,15600)=15062. 80% of that is £12,049 as a net personal contribution.

cjking

Just noticed, £23,142 is more than £22,417, so I think you have gone slightly over 100% of earnings as well as going slightly over your 40K allowance.

Linton

I think the £23142 includes the Salary Sacrifice contribution in which case all is OK. Perhaps the OP can confirm.

Vanadium3360

Thanks for the help so far

The £23142 (from annual pension statement) was the employers pension contribution for year 16/17. No other contribution was made by myself.

My salary of £40538 was reduced by salary sacrifice to 68% (£27566) of that for 7 months and then to 40% (£16215) for 5 months.

The P60 earnings was £22417

So if I have understood this so far, my annual limit for pension contributions for 16/17 was £40000.

£23142 employer contribution

Leaving £40000-£23142=£16858,

£16858 x 0.8 = £13486

So I could have paid £13400 out of taxed cash in that tax year.

Am I close to the mark ?

cheeky

Vanadium3360 wrote: »

£16858 x 0.8 = £13486

So I could have paid £13400 out of taxed cash in that tax year.

Am I close to the mark ?

if i understand what your asking, i dont think so - you cant go below minimum wage £7.50ph x 40hr = £15600pa

cjking

Ok, so you caused some confusion by saying you contributed 23K, when in fact you had contributed nothing and your employer contributed 23K. Also, your figures don't add up, P60 salary + salary sacrifice should equal reference salary. I suspect you have an employer contribution (over and above that created by salary sacrifice) that you haven't told us about. Or you made a typing mistake with the reference salary.

What appears on your P60 is the only thing thing that matters with regard to minimum wage issues and the relevant earnings limit. That is your legal/taxable salary. Even if you get all the tax back by making personal pension contributions, that doesn't change your salary, it just changes the tax on it.

I agree with your calculation of what you could have contributed yourself.

Vanadium3360

Thanks all for the help


We truly have a complicated pension system in the country.


Your right cjking I omitted to include employer contribution, employer NI saving and medical in the reference salary.


Nice to know I havn't overpaid.


Thanks again