DB Scheme via Salary Sacrifice - Pension Input Amount?

zagfles

cloud_dog said:

Ok, two things... I understand what PIA is, and I understand that within a DB scheme PIA is deemed a company contribution.

It makes no difference whether it's deemed a company contribution or not. Some DB schemes take employee contributions by net pay, some do via sal sac. Makes absolutely no difference to the PIA or the AA. The PIA is based on teh increase in pension value. Who made the conts is irrelavent.

As all monies going in to my pension are under Salary Sacrifice, all are company derived.  Where I may be falling down is how to treat the PIA within the considerations on any of the pension limits.  To be clear I make zero contributions in to my pension, all contributions are gross company ones and it was my understanding that these counted towards the £40k annual limit.  And, IF this the case then wouldn't the PIA figure need to be counted against company totals?

Put another way, simplistically, I have a PIA of £7k, and I wish to put as much money as possible in to my pension only via salary sacrifice.  How much can be sacrificed?

It's a DB scheme. What happens with the extra sacrifice, does it buy you more DB benefits, or does it buy DC benefits?

If it buys you more DB benefits, then the amount sacrificed is totally irrelavent for the PIA/AA, it's the increase in pension value that matters.

If it buys DC benefits, then it's the amount sacrificed (plus any extra company conts they pay in eg saved NI). Assuming they just pay in what you sal sac, then you could sal sac another £33k (or more if you have carry forwards available)

Swipe

cloud_dog said:

Put another way, simplistically, I have a PIA of £7k, and I wish to put as much money as possible in to my pension only via salary sacrifice.  How much can be sacrificed?

Assuming you plan to do no overtime, your pension fund should be able to help you with that figure.

cloud_dog

 I understand what PIA is and how it is calculated.

I can also see what I have missed out of my posts which has led us down this confusing path, so I apologise for that.

What I neglected to state is that we are talking about additional payments in to a DC type AVC account.  So, I am SS additional monies in to the AVC account and have taken the PIA value in to account (rightly or wrongly....TBC) as part of the overall AA.  I subsequently found out that in 17/18 FY the PIA was actually slightly negative (stated as zero).  So, if the PIA is counted in the above scenario, and it is lower than I originally identified is there an opportunity to SS even more when the PIA is low?

Swipe

If you know what your PIA amount for your DB pension is, then simply deducting that from your remaining annual allowance will give you your answer. If you are in doubt about your estimated PIA, then contact your pension fund for their calculation.

hyubh

cloud_dog said:

As xylophone linked to in the second post, the PIA for a DB scheme is deemed to be a company contribution under salary sacrifice, therefore it needs to be counted as part of the £40k AA (for non-tax relief contributions).

Unless I've misinterpreted or misunderstood?

Sorry, I agree with zagfiles... the PIA for a DB scheme needs to be counted because it's an increase in DB pension entitlement during the tax year. Being a 'company contribution' is neither here nor there. In a sense, all DB entitlements are a 'company contribution', which is why the AA for DB works very differently than the AA for DC...

By the way, how did you have a zero PIA? Surely you accrued some sort of extra pension with the year? Or is your DB scheme closed to further accrual, with just a final salary link remaining...?

jamesd

First calculate PIA for the DB portion. Then treat the DC portion as regular DC using whatever is left over from the current year and available annual allowance carry-forward from the last three years. The scheme might combine them but that's unhelpful for your planning.

By design, carry-forward of unused AA is supposed to handle the raise/bonus risk but you trying to maximise the DC potential means you also bearing that risk of the non-punitive AA charge. And scheme pays the charge out of the DC should be possible o mitigate the risk.

zagfles

cloud_dog said:

 I understand what PIA is and how it is calculated.

I can also see what I have missed out of my posts which has led us down this confusing path, so I apologise for that.

What I neglected to state is that we are talking about additional payments in to a DC type AVC account.  So, I am SS additional monies in to the AVC account and have taken the PIA value in to account (rightly or wrongly....TBC) as part of the overall AA.  I subsequently found out that in 17/18 FY the PIA was actually slightly negative (stated as zero).  So, if the PIA is counted in the above scenario, and it is lower than I originally identified is there an opportunity to SS even more when the PIA is low?

What really caused the confusion (for me anyway) was stuff like "£40k AA (for non-tax relief contributions)" which makes no sense.

DC benefits - it's what goes in (doesn't matter where it came from). For DB it's the increase of pension value, which you seem to understand.

cloud_dog

zagfles said:

What really caused the confusion (for me anyway) was stuff like "£40k AA (for non-tax relief contributions)" which makes no sense.

DC benefits - it's what goes in (doesn't matter where it came from). For DB it's the increase of pension value, which you seem to understand.

I'd seen the £40 limit referred to in this manner previously.
Re 'contributions' (I'll use that in it loosest term to include the PIA value), I was originally looking for confirmation as to whether the PIA value was company or personal (answered), and then a way to calculate the PIA (answered) so I could work out the remaining value that could be contributed via AVC / DC style as it is all company contributions.  

Thanks for trying to help me though 

zagfles

hyubh said:

cloud_dog said:

As xylophone linked to in the second post, the PIA for a DB scheme is deemed to be a company contribution under salary sacrifice, therefore it needs to be counted as part of the £40k AA (for non-tax relief contributions).

Unless I've misinterpreted or misunderstood?

Sorry, I agree with zagfiles... the PIA for a DB scheme needs to be counted because it's an increase in DB pension entitlement during the tax year. Being a 'company contribution' is neither here nor there. In a sense, all DB entitlements are a 'company contribution', which is why the AA for DB works very differently than the AA for DC...

By the way, how did you have a zero PIA? Surely you accrued some sort of extra pension with the year? Or is your DB scheme closed to further accrual, with just a final salary link remaining...?

If the inflation measure used by the HMRC calculations to increase the starting value of the pension is different to the inflation measure used to upgrade the pension benefits by the scheme, for people with long service this can easily result in big differences in the PIA, even enough to reduce the PIA to zero (or vastly increase it). Particularly as you say for those with a final salary link, as it's then the discrepancy between their payrise and the HMRC inflation measure.

cloud_dog

17/18 FY no salary increase so, I assume CPI was greater (slightly) than the PIA.

EDIT:  CPI was 2.8% in Sept 2017 (assuming I've used the correct table out of the 63 in the downloaded spreadsheet!).  

I'm creating a spreadsheet to help me monitor changes in the PIA, as to be perfectly honest, I didn't appreciate how significantly the PIA can change year-on-year.  Any salary increases are limited to a maximum of 1% increase within my salary related to my DB pension; I have a basic salary (which DB benefits are calculated against), and my actual, real salary.