paying max Sipp whilst in LGPS

bowlhead99

Apodemus wrote: »

Some folks are saying that all one needs to do is deduct the LGPS sum as it appears on the pay slip from gross pay.

Yes, they are saying it, but that answer is wrong if you're trying to see how much of a £40k limit you have left. The payslip sum does not directly drive your pension benefit in retirement. The scheme rules on what benefit you get for how much salary and service is what drives your pension benefit in retirement.

So the cash contributions in a particular year are not used to measure what's being put away for retirement because they already know what you are getting in retirement, based on your salary and service . The amount of cash they happen to collect from employer and employee contributions is an afterthought, depending on how well the pension scheme is already funded and what it looks like it might cost to provide the benefits to everyone in the scheme who survives to get them.

If you are not looking at the £40k limit and are just trying to see how much of your salary you haven't put into your pension, then yes you would take your total salary and subtract your personal contributions as per the payslips

Others that it is the uplift in benefit that needs to be deducted

Yes, those people have it correct, if you are trying to see how much of a £40k limit has already been consumed by your pension. For Merlin321's significant other, they are not going to be worried about the £40k limit due to having a much lower salary than that. For higher earners the £40k limit will come into play.

With a defined contribution scheme, you can only measure by the amount of contributions being put into it. You 'define' the contributions being put into it, and what you eventually get out of it in retirement is an afterthought - it will be whatever it will be, depending on the contributions and the performance of investment markets.

With a defined benefit scheme, you measure by what benefits come out of it. You 'define' the benefits being given in retirement, and whatever it costs to fund those benefits is an afterthought - it will be whatever it needs to be.

So when it comes to limiting annual amounts of pension benefits being acquired during the working life, different approaches are taken, depending on whether the pension is DC or DB.

The amount you or your employer happen to be asked to contribute into a DB pension scheme in a particular year does not drive the increases in pension benefits you get from the scheme. The benefits are defined, linked to salaries and service. You come up with a measure of value at the start of the year, then do a year of work, value it again, and the difference between the two (if positive) is the amount of value that 'went into' your pension during the year, for the purpose of testing the limit. It works like that because it's the Benefit which is Defined, and therefore the Benefit is used for measurement of how your pension is going up.

Cisamcgu gave the valuation method in post #3 (with AlanP providing a clarification to the conclusion, in post #6).

Silvertabby noted in post #10 that to see how much your annual allowance is, you should forget about what amount of cash contribution is made by you or the employer towards the DB part of your pension as shown in payslips. The DB pension improvement in the year is not driven by cash contributions but by salary and service, and the change for the year comes from a valuation of the benefits before and after; Silvertabby notes that you will see the annual allowance figure on an annual statement.

Uplift in benefit is much more complex to calculate in advance as it will include an inflation uplift on the value of career-average years and the uplift of current salary on any final salary years.

Yes it's more complex because you are looking at what the benefits were worth and what they are now worth. Post #3 had the method, ending with "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."

I’m happy to be corrected but I thought it was uplift in benefit that was critical.

Yes, it is. If you're measuring your capacity against an annual allowance contribution limit (and not just trying to measure your personal contributions against your salary limit), you'll need to see how much of that contribution limit is used up by the value increases in your DB pension. But the 'contribution' used up by the DB pension is not the cash contributions made to it, it's the valuation increase (if any) of your DB pension using the HMRC-approved method.

For the avoidance of doubt, if your DB pension value movement is negative for the year (for example you took a pay cut or kept the same pay while the valuation model allows for a small increase to be applied to the opening value), you would not try to subtract a negative number from your annual allowance, you would just treat it as zero usage of your annual allowance, leaving your full allowance available for DC contributions.

Apodemus

Bowlhead, thanks for confirming!

zagfles

I can't believe the amount of rubbish in this thread! This question comes up time and time and time again here.

The OP earns around £17k, so the annual allowance is totally irrelavent. OP is nowhere near it (assuming the MPAA doesn't apply). So the pension input amount, ie the increase in pension benefit value is also totally irrelavent.

The OP is contrained by the earned income tax relief limit only. They can put in 100% of their earnings (gross) after their own conts to the LGPS are taken off, or 80% net. As stated by AlanP above.

zagfles

merlin321 wrote: »

Ah just done this and all seems well. This is the total gross amount including tax relief?

No, 0.8* taxable pay is the net amount you can put into a SIPP (taxable pay being pay minus your LGPS conts).