paying max Sipp whilst in LGPS

merlin321

Hi, Have been trying to work out how much my SO can pay into her Sipp, whilst contributing to her LG pension. So basic rule is up to annual earnings minus any other pension contributions.
But having trouble working out total LG payments, her monthly personal amount is £83. Pay slip states 'employers pension' as £397. So do I add these for monthly total? Then deduct this from her gross pay to leave balance free to pay in as Sipp. Or is it just her personal payments to deduct, as the employers amount is not directly added to her 'pot' as far as I know.

AlanP_2

Her contributions only for the limit imposed by annual earnings.

Does she earn more than £40k a year as Annual Allowance comes into play then and that is a bit more complicated.

SIPP alongside LGPS might be best option as you are doing but have you looked at the alternatives of AVC or APC as part of LGPS?

merlin321

No well below 40k, tried AVC's but think Sipp is better as she gets 25% uplift on all contributions.
Just don't want to over pay into her Sipp and be penalised by HRMC

cisamcgu

This is how to work out the value of LGPS contributions

10.1 Defined benefits arrangement
Your pension savings amount under a defined benefits arrangement is the increase in the value of your promised benefits over the tax year.
The increase is the difference between the value of your promised benefits immediately before the start of the tax year (the opening value) and the value at the end of the tax year (the closing value). The difference is found by taking away the opening value from the closing value. If the difference is a negative amount then your pension input for the arrangement is nil.


10.2 How to find the opening value for a defined benefits arrangement

The opening value of your benefits can be thought of as the amount of money that might be needed to provide the expected benefit. It’s a notional ‘capital’ value and is determined as follows:
Step 1 - find the amount of your annual pension. (This is the amount of pension that you would be paid if you retired now at normal pension age and without any extra benefits for ill-health. So, if you took your benefits today, what would you get without any adjustment for early payment?).
Step 2 - multiply the annual amount of your pension by 16.
Step 3 - if your scheme also gives you a separate lump sum in addition to your pension, for example, many public sector schemes provide a lump sum without having to give up pension, add the amount of the promised lump sum to the amount found after step 2.
Step 4 - Increase the total after step 3 by 1%.

10.3 How to find the closing value for a defined benefits arrangement

The closing value is the notional ‘capital’ value of the expected benefits at the end of the tax year in the same way as you find your opening value, but missing out the final step. This is determined as follows.
Step 1 - find the amount of your annual pension.
Step 2 - multiply that amount of your pension by 16.
Step 3 - if your scheme also gives you a separate lump sum in addition to your pension, for example many public sector schemes provide a lump sum without having to give up pension, add the amount of the promised lump sum to the amount found after step 2.
An explanation of the effect that transfers, pension credits/debits and benefit crystallisation events have on the closing value is in the Pensions Tax Manual PTM053301.
Do not count contributions you’re required to pay to a defined benefits arrangement, it’s the increase in the value of your pension rights that’s tested not the contributions you make.


Calculate this, subtract it from £40,000, and that is how much you can contribute to a SIPP. You can go back three years.

But, LGPS AVC is almost certainly a better idea unless you are deferring claiming the LGPS.

Andrew

merlin321

Thanks for reply, but now completely baffled! After doing that calculation I have a figure of minus 80000.
Its a bit complicated isn't it!

AlanP_2

cisamcgu - Not quite correct.

You can only contribute a gross amount up to your relevant earnings in the Tax Year, the £40k AA only matters if salary / contributions are at that level or above.

You can't earn £20k and contribute £60k even if you have carry forward.

The LGPS AVC scheme like most workplace contribution based schemes makes the pension payment before calculating taxable income. So if you contribute enough to take you below the £12.5k tax allowance you will miss out on tax relief.

Using a standalone pension that treats all contributions as net payments and reclaims tax relief from HMRC gets around that and so can be a better option if the circumstances are right.

cisamcgu

AlanP wrote: »

cisamcgu - Not quite correct.

You can only contribute a gross amount up to your relevant earnings in the Tax Year, the £40k AA only matters if salary / contributions are at that level or above.

You can't earn £20k and contribute £60k even if you have carry forward.

The LGPS AVC scheme like most workplace contribution based schemes makes the pension payment before calculating taxable income. So if you contribute enough to take you below the £12.5k tax allowance you will miss out on tax relief.

Using a standalone pension that treats all contributions as net payments and reclaims tax relief from HMRC gets around that and so can be a better option if the circumstances are right.

Thanks for the clarification Alan :T

cisamcgu

merlin321 wrote: »

...Its a bit complicated isn't it!

It certainly is....

merlin321

Looking on the LGPS website, it seems that employer contributes 2/3rds. so if I work off these figures then hopefully wont breach HMRC limit!

Silvertabby

merlin321 wrote: »

Looking on the LGPS website, it seems that employer contributes 2/3rds. so if I work off these figures then hopefully wont breach HMRC limit!

No - your LGPS AA is calculated on the actual increase in your pension benefits. Contributions have nothing to do with it.

Your annual benefit statement will give your AA as at 31 March.

daveyjp

merlin321 wrote: »

No well below 40k, tried AVC's but think Sipp is better as she gets 25% uplift on all contributions.
Just don't want to over pay into her Sipp and be penalised by HRMC

Rather than think be certain. Does the AVC offer salary sacrifice? That is worth more than 25% uplift.