How much can we contribute?

jscol

My wife works part time in the NHS and earns about 12k p.a.
She contributes to the NHS pension scheme and has a mixture of 1995 and 2015 scheme entitlement (final salary and career average.)
We also contribute to a Royal London pension for her in order to get the tax relief.
Her present Royal London contributions are £320 per month but as we have some spare cash at present we are interested in contributing more (either as a lump sum or by increasing monthly contributions.)
Can someone tell me what is the maximum she can contribute a year? I know the answer is her annual salary but not sure if this relates to contributions before tax relief? Or refers to the figure she gets after tax relief is applied? In addition I not sure what the implications of her NHS pension contributions are?

Thanks.

Microbe65

The amount will be limited by her relevant earnings. Contributions are always calculated gross, i.e. after tax relief has been added.

There is also an Annual Allowance limitation, although with a salary of about £12k pa, this is less likely to be an issue unless she has a significant increase in salary


https://www.nhsbsa.nhs.uk/member-hub/annual-allowance

Noodling

The amount will be her gross salary, less £320 X 12 (Royal London)if this is the gross figure, less the value of her annual increase in NHS pension (I'm assuming this is DB).
This is valued roughly as 16 X the increase in pension for the year, updated by inflation. ( It's a little more involved than that, but that should get you close enough).
Once you establish the annual amount left, multiply the result by 0.8, to get the net value and this is what you can pay in extra on the year.
BTW - I would round it down a bit to leave room for any calculation errors.

zagfles

Microbe65 wrote: »

The amount will be limited by her relevant earnings. Contributions are always calculated gross, i.e. after tax relief has been added.

There is also an Annual Allowance limitation, although with a salary of about £12k pa, this is less likely to be an issue unless she has a significant increase in salary


https://www.nhsbsa.nhs.uk/member-hub/annual-allowance

Just to add, it's her gross earning after her contributions to the NHS pension scheme. Which should be her taxable/P60 income, as that is after pension conts are taken off.

That's the gross amount, so 80% of that is the net amount she can contribute to a personal pension.

For instance, salary £12,000, contribution to NHS pension scheme £1000, taxable/P60 earnings are £11,000, so she can pay £8800 into a personal pension and the pension scheme will claim £2200 tax relief.

As above the annual allowance very unlikely to be an issue.

zagfles

Noodling wrote: »

The amount will be her gross salary, less £320 X 12 (Royal London)if this is the gross figure, less the value of her annual increase in NHS pension (I'm assuming this is DB).
This is valued roughly as 16 X the increase in pension for the year, updated by inflation. ( It's a little more involved than that, but that should get you close enough).
Once you establish the annual amount left, multiply the result by 0.8, to get the net value and this is what you can pay in extra on the year.
BTW - I would round it down a bit to leave room for any calculation errors.

Wrong. You're confusing the earned income tax relief limit with the annual allowance. The annual allowance is irrelavent to someone on £12k except in very unusual circumstances. The only limit the OP needs to be concerned about is the earned income tax relief limit, and employer contributions/increase in pension value is not relevant to this limit. Only her contributions to the employer's scheme.

Noodling

I'm not wrong in how to assess her contributions if the NHS pension if it is DB. With a DB pension, you don't count the 'contribution amount' you count the increase in value over the year value as stated above. See link below.
https://www.accountingweb.co.uk/tax/personal-tax/how-to-value-final-salary-pension-benefits

zagfles

Noodling wrote: »

I'm not wrong in how to assess her contributions if the NHS pension if it is DB. With a DB pension, you don't count the 'contribution amount' you count the increase in value over the year value as stated above. See link below.
https://www.accountingweb.co.uk/tax/personal-tax/how-to-value-final-salary-pension-benefits

Read what I wrote! That's for the annual allowance! The annual allowance is not relevant to the OP, as it's almost impossible to exceed it on a salary of £12k.

The OP is constrained by the other, completely separate limit, the earned income tax relief limit (100% of earnings or £3600 whichever is greater) and that limit only applies to contributions made by the member. (since it's a limit on tax relief, and the employee doesn't get (direct) tax relief on employer conts).

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

kidmugsy

zagfles wrote: »

That's for the annual allowance!
.....

separate limit, the earned income tax relief limit (100% of earnings or £3600 whichever is greater) and that limit only applies to contributions made by the member.

This point merits its own sticky.

zagfles

kidmugsy wrote: »

This point merits its own sticky.

Probably does. Even IFAs get it wrong! Problem is there are so many simplistic articles from usually reliable sources which try to combine the two limits into one, saying rubbish like "the most you can contribute to a pension is your earnings subject to £3600 min and £40,000 max". Complete rubbish.

Microbe65

Although probably not an issue for the OP, the Annual Allowance limit can be significant for full-time NHS employees.

A promotion onto a higher pay band (with the 16 X multiplier) can lead to a significant increase in pension value and utilise a considerable proportion of the £40k Annual Allowance. Fortunately, in these circumstances it may be possible to Carry Forward if there is unused allowance from previous tax years.

jscol

Thanks for all replies.
I realise I've been getting confused about employers contributions, increase in the value of her pension pot and tax relief.

I realise know that all I need to focus on is her own NHS pension contributions and what she has contributed to her RL pension in this tax year.

Thanks for clarifying my thinking.

Out of interest if I did get my final calculations wrong and contributed a little too much into her RL pension what would happen? Would we just not get tax relief on that portion over the 12k? Or would the excess contribution be returned?

That's not a mistake I plan to make! Just interested.