Carry forward query

Bob2001

i thought I understood this, but now I’m not sure.
I will be earning up to December this year, and paying into the company pension, then I am taking redundancy.
I wish to use as much of my settlement for carry forward of the previous three years as I can.
To make it easy let’s say that I contributed £20,000 in 2017-2018, £20,000 in 2018-2019 and £20,000 in 2019-2020, and will contribute £15,000 up to December for 2020-2021 when I will leave.
So I can make these amounts up to the £40,000 allowance for each of these years, so £60,000, for the previous three years, and £25,000 for this current year. A total of £85,000
Say my annual salary is £85,000, but leaving in December I will only have earned £64,000 in 2020-2021 tax year.
does this mean that £64,000 is the maximum I can contribute as a carry forward payment into my pension, for all these years? 

Dazed_and_C0nfused

I think you can contribute a maximum of £64,000.  £40,000 using this year's limit and £24,000 making use of carry forward.

The tax benefit of doing it will depend on what method you are using to contribute (net pay or relief at source being the likely options).

jamesd

Yes, £64k gross maximum for personal (not salary sacrifice or other company) contributions.

A company may be willing to make company contributions using company money for redundancy payments and this doesn't count towards the £64k personal limit. Personal and company are added together and compared to the 85k.

hugheskevi

Will the redundancy payment exceed £30,000?
If so, the amount exceeding £30,000 would be employment income and so is also relevant UK earnings (in addition to the £64,000 of actual earnings).

Albermarle

You  could in theory add  up to £100K  ( including tax relief and any employer contributions) during this tax year  using the carry forward rule . So you would have to subtract employer contributions from £100K to give the gross amount ( including tax relief ) that you could contribute . However you would have to have sufficient earnings to do this .
This would mean your salary earned this tax year + any taxable redundancy  money. 
This also assumes that in your example when you say you contributed £20K - this was including any tax relief added and employer contributions .

Bob2001

To add that the carry forward payment would come from the settlement package for the redundancy, to be put in before tax deducted.
Again the £20K examples are the totals of monthly contributions paid from salary before tax, made over the previous 3 years.

NottinghamKnight

Not wanting to state the obvious but you probably don't want to contribute all through your company scheme, if you could, as you wouldn't get tax relief on the sum below the personal tax allowance. Contributing 80% of that to a sipp would give you the full amount going into your pension and 20% of the personal allowance retained by you.

Bob2001

You’ve lost me there NottinghamKnight - I am no expert, you may need to use words of one syllable...

NottinghamKnight

Bob2001 said:

You’ve lost me there NottinghamKnight - I am no expert, you may need to use words of one syllable...

Sorry, my point was that you don't get tax relief on contributions from pay into a work pension below your personal allowance; there are rules around minimum wage which mean that people are limited in contributions by salary sacrifice for example to ensure their earnings are at least around £16k. So if you want to pay as much as possible into your pension and get tax relief you need to pay separately into a sipp or personal pension for the last £12k gross where the provider automatically claims and adds basic rate tax to the pension. 

jamesd

NottinghamKnight said:

you don't get tax relief on contributions from pay into a work pension below your personal allowance. 

Your point is good but it depends on the scheme, though it's only commonly an issue for part time working.

1 For salary sacrifice you are prohibited (illegal for you employer) from being paid less than minimum wage in any pay period (commonly month). In addition no tax relief is added in the pension so you don't  get any tax relief on any part of the sacrifice that takes you below £12,500 / 12 if on cumulative basis, less if your tax code is lower (a bit more fiddly but good enough). Since minimum wage is £8.72 an hour this ensures that pay is high enough for tax relief if 12500 / 52 / 8.72 = 27.7 hours a week are being paid.

2. Net pay schemes have similar issues.

3. Relief at source schemes always give 20% relief, whatever the income. Just like personal pensions.

Bob2001

In terms of carry forward, it seems to hugely depend on when you are made redundant doesn’t it?
if you’re laid off in March, then you have almost the entire tax year of earnings to claim up to, but if it’s May you would have only a single months of earnings as your allowance?