Calculating DB + SIPP contributions to avoid contributing more than earned

tsg20

Hello, I'm looking for some advice on how to calculate how much money
I can pay into pensions this year. I know how annual allowance is
calculated; instead, I want to make sure I don't contribute more money
than I have earned (due to having previous years allowance available, etc).

The challenge is in calculating my contributions to my defined benefit pension. For example using made up numbers: if I earn 30,000 per year before tax or NI, and contribute 300 per month to a defined benefit pension, I would naively think that this would leave 30,000 - 12*300 = 26,400 that I could contribute to a SIPP.

But this doesn't consider my employer's contributions, or of the
defined benefit. When doing the annual allowance calculation, the
contribution numbers aren't what's considered; instead you look at the
change in the annual benefit, then multiply it by 16. Which of these
options do I need to do? Or is it something else?

zagfles

I think you're confused. The annual allowance you have available has nothing whatsoever to do with how much you earned, unless you're a very high earner and are affected by the AA taper.

There is a separate limit on tax relief you can get for personal contribitions of 100% of earnings or £3600 if greater. This does not include employer contributions, just yours. So for instance if your earnings are as per your example, your calculation is correct and you can contribute £26400 gross to a SIPP (you'd actually pay 80% of this as your net contribution ie £21120) and you'd be within this limit.

Don't confuse this with the annual allowance, They are separate limits which work completely differently. The annual allowance you have available is £40k minus the pension input amount for your scheme, which for a DB scheme is measure of how much your pension value has increased. On a salary of £30k with a good DB scheme the pension input amount might be around £10k, but this can vary a lot. You can ask the scheme what the pension input amount were for previous tax years.

But if the DB pension was your only contribution in previous years and you haven't had a big payrise, it's likely the annual allowance won't be an issue for you, so you just need to worry about the earned income/tax relief limit.

NoMore

You need the Pension Input Amount (PIA) from your DB provider, it isn't related to how much you or your employer contribute for DB.

This calculator is useful but I would always check against your DB provider and not rely on the calculator alone.

https://www.pruadviser.co.uk/xpf_calculators/defined-benefit-pension-input-tool/