Have I paid too much into my pension?

Ash_Pole

My pension is currently with Scottish Widows, it was transferred over from another provider in October 2014.

I've received a letter from SW telling me my contributions have exceeded the HMRC annual allowance in 2017/18 and I may incur a tax charge.

But, if I plug my contributions going back to 08/09 into the HMRC calculator it tells me I'm within the allowances.

Scottish Widows aren't taking into account any unused allowances carried forward prior to the transfer in 2014. Does this mean I'm ok (i.e. no tax to pay) or is the carried forward allowance not transferred when the scheme provider changes?

Paul_Herring

Ash_Pole wrote: »

Scottish Widows aren't taking into account any unused allowances carried forward prior to the transfer in 2014. Does this mean I'm ok (i.e. no tax to pay) or is the carried forward allowance not transferred when the scheme provider changes?

The former (no tax) - any allowance is for you personally to book-keep to make sure you don't fall foul of the rules, not the pension fund providers, thus there was nothing to 'transfer' over.

The same - the other way - applies if you contribute to more than one pension fund over the year; the companies don't talk to each other to make sure you stay under the limits; it's still up to you.

ex-pat_scot

I'm in the same position with SW.


They do not know what other contributions or carry back allowances you might have had from previous years.


You need to be able to demonstrate, if asked by HMRC, that your total contributions from prior years do not exceed the maximum (the online calculator is quite good in that respect).


You don't need to send anything off or tell anyone.


You do need to keep an eye on your current contributions, as I suspect if you continue at current contribution level then you will at some point exhaust the amount of offset from prior years.


Whilst it's a little complicated, in the overall complexity of pensions rules it is actually on the simple end.
The reason for the three year approach is to recognise that
1. some people have volatile earnings year -on-year, and it allows for an element of smoothing and tax & cash flow planning. (most tax law seems designed entirely for PAYE people)
2. there is / was a general culture whereby, in the final few years before retirement, your costs of living might well reduce and you might still be at peak earnings, so would tend to make very large (relative) contributions into your pension ahead of retirement. I've heard lots of stories of people putting close to 100% of salary in for the last few years, particularly when Annual Allowance was £255,000 pa. What carefree times they were!