Pension Input Calculations - number check please

mark55man

Hi

Can you help check my understanding of how a small contribution to DB (TPS scheme), some PAYE salary, and some Self Employed income all add together for pension contribution.. My OH has the following income pattern over the past 4 years (all numbers are gross and rounded to nearest £500)

• FY 18/19 - PAYE = £9k : SE £3.5K
• FY 17/18 - PAYE = £4K : SE = £6.5K
• FY 16/17 - PAYE = £0K : SE =£7K
• FY 15/16 - PAYE = £0K : SE =£5K

My calculation (online calculator - but am seeking precise values) is that for this FY her pension input amount will be £3K and proportionately less for the previous year ie this is the amount her pensions notional value has increased by, not the value of her contributions.

My question is twofold - in order to top her pension up with a lump sum that is coming our way, is it correct

• to assume the SE income is counted just the same as the gross PAYE
• to subtract the pension input amount from the total income to see what is left of the annual allowance for that year

My calculation (assuming I am correct) is that to use up the allowances would need a lump sum of £30.5K so my calculation is for

• FY18/19 - Annual allowance =£12.5K - DB Pension Input = £3K therefore amount able to contribute = £9.5K
• FY17/18 - Annual allowance = £10.5K - DB Pension Input = £1.5K therefore amount able to contribute = £9K
• FY16/17 - Annual allowance = £7K - DB Pension Input = 0 - therefore amount able to contribute = £7K
• FY15/16 - Annual allowance = £5K - DB Pension Input = 0 - therefore amount able to contribute = £5K

Finally - as the lump sum is likely to be closer to £20K am I right to think that I exhaust the annual allowance from the earlier years first so if I was able to repeat the exercise next year I would still have some left (would this be FY18/19 or 17/18 - ie are you assumed to use up current year first)

Sorry for long/multiple question - I have done some reading and just want to get some clarity and confidence before we set things up


Cheers

zagfles

You're totally confused. As someone else said, there needs to be a sticky on this.

Pension input amounts and the annual allowance are totally irrelavant to someone earning around £12k, except in very unusual circumstances. Forget about them. (unless the MPAA applies)

She is constrained by the earned income limit (100% of earnings/£3600) and there is no carry forwards for this limit. And only employee & personal contributions count. Not employer. Not pension input amounts.

So with PAYE income of £9k and SE income of £3.5k, she can contribute £12.5k gross minus her contributions to the DB scheme (not the pension input amount). For instance if her conts to the DB scheme are £500, then she can contribute £12k gross, ie £9600 net.

mark55man

Ah OK - so good news and bad news. I can put more in (as contribution was about £500), but there is no allowance carryover concept -which (you are right) has totally confused me

I did read a fair number of threads but they were mainly about recycling. As my OH income will be similar in 19/20 I will just have to wait until April to do the second half.

If anyone could help with a couple of links about wher I am going wrong I would be grateul, as if your annual allowance carry over isnt for this then what is it for


Thanks again

zagfles

Have you read some simplistic drivel that says something like "you can contribute up to £40k or your annual earnings whichever is higher"? That would explain your confusion. It is rubbish. It's tries to combine two completely unrelated limits with completely different rules into one.

Read my second paragraph above. The annual allowance is not an issue. The annual allowance does not vary with earnings (unless very high, £100k+), for someone who hasn't taken any pension and is not a high earner the annual allowance is £40k, and can be carried forwards from previous years. So it's not a issue for you, forget about it.

You are constrained by a different limit, the tax relief limit (100% of earnings/3600). This is a different and completely unrelated limit with completely different rules. There is no carry forwards for this limit. "Pension input amounts" and employer contributions aren't relevant (they are only relevant to the AA). It's a limit on tax relief you get as a member for contributions to pensions. See here for more details https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

mark55man

ok thanks Zagfiles. I think I have enough headroom to do what I was planning, it will just take a couple of years rather than being able to do it all at once.
still not entirely sure I totally get it, but I get it enough for now

Albermarle

Maybe a simple way of explaining it will help.
If you contributed zero to a pension in the last financial year , you could carry forward the unused £40K annual allowance , so you could contribute £80K this FY.
But only if you had > £80K earned income this FY
If you had £20K earned income that would be the max you could contribute ( gross) , regardless of the annual allowance.

mark55man

Thank you Albermarle. Yes that's how I had it figured after a few clues from Zagfiles

You can only pay into your pension with this year's money, but if you have enough income this year you can reach back to use the annual allowance over 3 years (so useful for serious bonuses)

Complications to the allowance are if you earn serious money (tapers to 10K), or if you have already starting taking non tax free DC money it reduces to £4K (aka MPAA)