Confusion about annual allowance

Motau139

If I earn £45000 per year and is contributing to a DB pension at 8.5% and employer contributes the same, i.e. £3825 from each.  I know we need to use pension input amount in calculating annual allowance for DB pension.  If the PIP for 20/21 is ~ £15000, how much can I contribute towards my SIPP?  Is it £40000 minus £15000?  Thanks.

AlanP_2

You need to do two calculations I think:

1) Limit based on annual income: So £45,000 - £3825 personal pension contribution = £41,175 as the maximun Gross amount that could be contributed.

2) Annual Allowance: So £40,000 - £15,000 PIP as you say = £25,000 as the maximum Gross amount that could be contributed.

BUT - If you have enough unused AA from previous 3 years (and were a member of a pension scheme in those years) you can utilise carry forward to contribute a maximum of £41,175 Gross as per (1) above. 

Motau139

Thanks that's really helpful.  If we ignore the carry forward, does it mean I can contribute £20000 (net) towards my SIPP in 20/21?

zagfles

Motau139 said:

Thanks that's really helpful.  If we ignore the carry forward, does it mean I can contribute £20000 (net) towards my SIPP in 20/21?

Yes, although the PIA for a DB scheme is difficult to predict accurately, but if you have a resonable amount of carry forwards that would act as a buffer.