Confused - Annual Allowance contributions

silvand

Hi,

I want to maximise my annual allowance and open a SIPP but I'm unsure how much I can put in.

Salary £30,000 (advertised)
Work's salary sacrifice (Direct Contribution type) = me £2,000, employer £3,000
I'm not hitting the £40,000 limit and understand that I can only contribute my gross salary but i'm struggling to calculate what I should put in.

Which one below is correct or are none of them are?

a) contribute £30,000
so it's £24,000 from myself (allowing £6,000 for tax relief)

b) contribute £28,000 (because i've already salary sacrificed £2,000)
so it's £22,400 from myself (and allowing £5,600 for tax relief)

c) contribute £25,000 (as I've already sacrificed £2,000 and employer paid £3,000 for workplace pension)
so it's £20,000 from myself (and allowing £5,000 for tax relief)

In short, I want to know how much I can put in knowing that I'm already contributing (and employer) to a workplace pension. I'm not sure what to include and what not to include.


extra details added -

Basically I have some inheritance money (about £60,000) that was in a savings account that's not really doing much. I have maxed out my ISA for this year and have put put some aside for bits and bobs but would like to open a SIPP account for this tax year and maximise the annual allowance. I'm hoping that i can put the remainder into my ISA and SIPP for the next tax year.





Thanks

zagfles

b)
I assume it's a DC scheme. Your salary is £28K as you sal sac'ed £2000. The employer contributions of £5k don't count towards the 100% of earnings limit (which is NOT the annual allowance, it's a different and separate limit).

The employer conts do count towards the annual allowance, but you are within that as total is £33k even if you put the max in.

Paul_Herring

In your situation, your own personal contributions are restricted to your gross wage.

Your total contributions, including employer's, are restricted to £40,000.

So (b).

Bimbly

Does your employer scheme allow you to put extra into that pension via salary sacrifice rather than open a SIPP?

If so, you save on national insurance (an extra 12%) as well as income tax (20% above the personal allowance). So £100 investment into your exployer scheme costs you £68, while using a SIPP costs you £80.

You can only salary sacrifice up to the minimum wage. You could put the rest in a SIPP if you want, but I believe you only get tax relief on the bit above the personal allowance (£11,800 from April, I think).

Paul_Herring

but I believe you only get tax relief on the bit above the personal allowance (£11,800 from April, I think).

No - you get 20% relief even on wages that weren't actually taxed at 20%. It's the same as the £2,800 that non-earners can put in to get it grossed up to £3,600.

greenglide

Is it really salary sacrifice where there are no employee contributions because your employer pays them for you and reduces you gross pay accordingly?


If so you can pay up to your gross pay into the pension as gross payments (you need to apply the tax relief to get the net payment).


Is the figure of £30,000 your actual gross pay or is it the figure after the sacrifice? Many schemes refer to the figure before the sacrifice as "reference salary" and this is what they would have paid before the sacrifice.


Which is yours?

zagfles

greenglide wrote: »

Is it really salary sacrifice where there are no employee contributions because your employer pays them for you and reduces you gross pay accordingly?


If so you can pay up to your gross pay into the pension as gross payments (you need to apply the tax relief to get the net payment).


Is the figure of £30,000 your actual gross pay or is it the figure after the sacrifice? Many schemes refer to the figure before the sacrifice as "reference salary" and this is what they would have paid before the sacrifice.


Which is yours?

The actual gross pay is the same as the figure after the sacrifice! I guess you meant to ask if the £30k is the actual gross pay or the figure before the sacrifice.

Which is a good question - I'd assumed it was the figure before the sacrifice, ie original salary £30k, sal sac £2k, gross pay £28k. In which case b) applies as I said above.

But if £30k is the figure after the sacrifice, ie original salary £32k, sal sac £2k, gross pay £30k, then a) would be the correct answer.

lisyloo

Is it really salary sacrifice where there are no employee contributions because your employer pays them for you and reduces you gross pay accordingly?

Yes. There are employee NI benefits and sometimes employer NI as well.

If so you can pay up to your gross pay into the pension as gross payments

I don't think that's correct for salary sacrifice.
Employers HAVE to pay minimum wage by law, so max is

salary MINUS national minimum wage


You may then be able to increase outside of salary sacrifice.

zagfles

lisyloo wrote: »

Yes. There are employee NI benefits and sometimes employer NI as well.





I don't think that's correct for salary sacrifice.
Employers HAVE to pay minimum wage by law, so max is

salary MINUS national minimum wage


You may then be able to increase outside of salary sacrifice.

I think the PP was talking about the max into the SIPP, not the works pension.

silvand

Thanks for the replies but I'm still confused/have more questions (because I'm a bit "thick when it comes to pensions but I'm trying). I should have included some more information in my original post.

Basically I have some inheritance money (about £60,000) that was in a savings account that's not really doing much. I have maxed out my ISA for this year and have put some aside for bits and bobs but would like to open a SIPP account for this tax year and maximise the annual allowance. I'm also hoping that I can put the remainder into my ISA and SIPP for the next tax year.

The £30,000 is the "advertised" salary, before everything.
Workplace pension is "defined Contribution" DC type.
I'm planning on upping my workplace contribution but maybe start at the next tax year and think I need to get my head around all this now so when I do, I can adjust my SIPP contributions accordingly.


With my 1st post and the additional info in this one, is it still true that (b) still stands?

[b) contribute £28,000 (because i've already salary sacrificed £2,000)
so it's £22,400 from myself (and allowing £5,600 for tax relief)]

So now that I'm ready to put money into my new SIPP, is it true that I don't have to think any further about what I've already contributed into my workplace pension e.g. I could put £28,000 (£22,400 / £5,600) and don't have to further deduct employer contributions, etc?

I'm scared of going over my annual allowance by being stupid and not factoring/deducting the contributions i've already made at work.

I'm hoping that now it's time to put money into the SIPP, that I can safely ignore the work pension because what is done is done, and I can just use the £28,000 as the top limit.


Thanks

zagfles

First of all, it's not the annual allowance you'd be exceeding. The annual allowance is £40k. Even if you put all your salary into a pension that plus your employer's contribution wouldn't get near £40k. Forget about the annual allowance, that's not your constraint.

There is another completely separate limit. You can't get tax relief on over 100% of your earnings. Your earnings (ie taxable P60 earnings) will be £28k from what you've written, so if you put in more than £28k gross you can't get tax relief on the excess. Employer contributions (this includes sal sac contributions - these are employer contributions) are completely irrelavant to this limit, they don't matter. It's a limit on personal tax relief so only applies you your contributions. So b) is correct.

But don't worry too much about exceeding the limit - it's not a hard limit like the ISA limit. You are allowed to exceed the limit, it's just you're not allowed tax relief on the excess, so you'd need to tell the provider. If you do accidently exceed it, you can ask your pension provider for a refund.