Early retirement-funding the gap

AlanP_2

Redsox64 said:

Thank you. I’ve dug out an estimate that I got for if I retired last year at 56, gives the following:
LTA £1073100
value of crystallised benefits £344517
percentage used 32%

Total value used £344517
total percentage used 32%

Total value unused £728582
percentage unused 68%

PIP 6/4/20-5/4/21
pension input amount £1600
unused allowance £38400
taxable amount £0

I am really struggling to understand it all, I don’t know what a crystallised benefit is? Can I work out my AA from these figures?I’ve rounded the figures. Help...... thanks 

If your salary is £30k then AA is not an issue as you can't contribute more than £40k anyway. 

AlanP_2

Bobziz said:

With salary sacrifice, is there not a minimum wage issue to consider too ?

There has been no reference to SS here and the OP is considering a SIPP so not in this case, but yes if it was a SS scheme and contributions to an employer scheme then that would be another limit.

Secret2ndAccount

Annual Allowance isn't a factor, but you can only contribute up to your relevant earnings. OP is trying to calculate how much her work pension uses up out of her relevant earnings. The rest can then go into her SIPP

Redsox64

Hi I have been paying into LGPS since 1983 and yes I work part time, so pre 2008 1:80th protected by R85, up to 2014 1/60th and post 2014 CARE 1/49th. My full time equivalent would be £49,700. I have been paying into AVC since May 2019  through salary sacrifice. 

sheslookinhot

Secret2ndAccount said:

Annual Allowance isn't a factor, but you can only contribute up to your relevant earnings. OP is trying to calculate how much her work pension uses up out of her relevant earnings. The rest can then go into her SIPP

Could you pay more in one year to “fill in” for previous years where no contributions were made to a private SIPP ? I fear that I have added more to my wife’s SIPP than I should have ?

Secret2ndAccount

sheslookinhot said:

Could you pay more in one year to “fill in” for previous years where no contributions were made to a private SIPP ? I fear that I have added more to my wife’s SIPP than I should have ?

No. The maximum contributions in any year is limited to your relevant earnings, less any other pension contribs you made. Actually 8/10ths of this amount, because it gets topped up x 1.25.

Briefly, relevant earnings is salary, bonuses, overtime (incl self employed), but not pension or savings interest or dividends.

There is a carry forward rule for those earning over 40k. Suppose you had one magic year where you earned 100k. The limit for one year's SIPP contributions is 40k, but you could pay in 60k (which tops up to 75k), using up your 40k from 2019 and 2020. But you still couldn't pay in more than your earnings for that one year. Can never breach that limit.

For those with minimal or no earnings, anyone can contribute up to £2880 which tuns into £3600.

If you've paid too much you need to tell the SIPP provider. I think they normally send the excess money back to you.

sheslookinhot

Secret2ndAccount said:

sheslookinhot said:

Could you pay more in one year to “fill in” for previous years where no contributions were made to a private SIPP ? I fear that I have added more to my wife’s SIPP than I should have ?

No. The maximum contributions in any year is limited to your relevant earnings, less any other pension contribs you made. Actually 8/10ths of this amount, because it gets topped up x 1.25.

Briefly, relevant earnings is salary, bonuses, overtime (incl self employed), but not pension or savings interest or dividends.

There is a carry forward rule for those earning over 40k. Suppose you had one magic year where you earned 100k. The limit for one year's SIPP contributions is 40k, but you could pay in 60k (which tops up to 75k), using up your 40k from 2019 and 2020. But you still couldn't pay in more than your earnings for that one year. Can never breach that limit.

For those with minimal or no earnings, anyone can contribute up to £2880 which tuns into £3600.

If you've paid too much you need to tell the SIPP provider. I think they normally send the excess money back to you.

Thank you. I guess it will be a return of contributions, above what is allowed, return HMRC 25% relief and wait until April to make contributions. Obviously paying more attention not what contributions can be made in 21/22.

Redsox64

Redsox64 said:

Hi I have been paying into LGPS since 1983 and yes I work part time, so pre 2008 1:80th protected by R85, up to 2014 1/60th and post 2014 CARE 1/49th. My full time equivalent would be £49,700. I have been paying into AVC since May 2019  through salary sacrifice. 

Am I over complicating things, AlanP_2 suggests that as I currently earn £30K (part time), it’s not above £40 K AA so not an issue as I can’t pay in more than my annual wage  anyway?

merlin321

Ah, I asked this question in this thread. https://forums.moneysavingexpert.com/discussion/6082348/paying-max-sipp-whilst-in-lgps#latest. Opinions where divided between simply deducting lgps contributions from gross earnings, to give total that can be put into Sipp.
Or the other very complicated formula that some others suggest. Nowhere on any Lgps sites or government  income tax advice web sites is a clear answer to be found. I personally have gone with the 'simple' method and so far have not had any warning letters from hmrc

Secret2ndAccount

I think a reset would be a good idea. Taking just the case of RedSox:
     Unlikely to be concerned by the lifetime allowance (more than £1 million)
     Unlikely to be concerned by the annual allowance (£40k per year)
     Paying into a DB scheme, with AVC''s paid by salary sacrifice

Add your monthly contributions to the scheme to your AVC's. Subtract that from your salary. Multiply by 0.8. That's what you can put in a SIPP

I want to tweak what I said earlier about AVC's vs SIPP. Since your contributions to AVC's come out before NI is taken, AVC's work out cheaper than SIPP. So I would be tempted to increase the AVC contributions a bit more, and put less in the SIPP. Same caveats about AVC's remain:
1. Can't get at the money without taking your pension. SIPP withdrawals are much more flexible.
2. Definitely don't put so much in AVC's that your remaining salary drops below your personal allowance (12500). If you do that, AVC becomes the most expensive way to contribute.
So maybe increase your monthly AVC to, say, 800 for maximum benefit. Don't know how often or how quickly your workplace can reduce your AVC's again if you reach a point where you want to stop depleting your savings.
I don't know what you're paying in pension contributions, but when you do your calculations you should come up with an answer in the region of £16k to put in your SIPP (which will top up to 20k). Next year, if you increase your AVC's that would drop to maybe 12k (->15k)