Help please - Pension Annual Allowance Question

milton1970

Hopefully a quick answer -
Looking at making an additional contribution this tax year to SIPP.
Being advised by IFA that employers contributions into a work based pension do not count within the add up when calculation the available annual allowance.
My basic understanding was that the annual allowance was £40,000 pa currently (although maximum limited by gross income level) plus understand the 3 year c/fwd rules & high earner restrictions.

My logic is (assuming I earn £40,000 grass (say) & have made gross employee contributions tax year to date of £10,000 (say) & employer contributions of £8,000 have been made (say) ... the available allowance would be £22,000 (gross) 
i.e. Employer contributions towards personal pension are included in calculation ?

Correct ?

Thanks in advance

FirstTimeSolo

Yes this is correct as far as I know. Employer contributions count towards the annual allowance. 

Linton

Yes employer contributions count against the £40K limit.  However they dont count against the earned income limit.  The point is that there are two separate limits with quite different rules - the £40k limit can be carried forward for 3 years whilst the earned income limit cant.  You have confused things by saying your earned income is £40K so both limits are for the same amount.

milton1970

Thanks @Linton - not sure that I understand ... Linton said:

Yes employer contributions count against the £40K limit.  However they dont count against the earned income limit.  The point is that there are two separate limits with quite different rules - the £40k limit can be carried forward for 3 years whilst the earned income limit cant.  You have confused things by saying your earned income is £40K so both limits are for the same amount.

If I change things slightly to try & make things clearer - say gross earnings were £32,000 plus Employers contributed £8,000 to pension (say) & I had contributed £10,000 gross (say) - my logic is that I would be able to contribute a further £14,000 gross.
Correct ?
I could also carry forward the unused allowance
Thanks

Linton

milton1970 said:

Thanks @Linton - not sure that I understand ... Linton said:

Yes employer contributions count against the £40K limit.  However they dont count against the earned income limit.  The point is that there are two separate limits with quite different rules - the £40k limit can be carried forward for 3 years whilst the earned income limit cant.  You have confused things by saying your earned income is £40K so both limits are for the same amount.

If I change things slightly to try & make things clearer - say gross earnings were £32,000 plus Employers contributed £8,000 to pension (say) & I had contributed £10,000 gross (say) - my logic is that I would be able to contribute a further £14,000 gross.
Correct ?
I could also carry forward the unused allowance
Thanks

No - the earnings limit does not include employer's contribution.  So you personally can contribute a further £22K gross to a pension this tax year. You cannot carry forward any unused earnings.

In addition to the earnings limit there is a £40K limit with different rules, but assuming those figures this is not affecting you at the moment.

milton1970

Thanks @Linton - BIG Help - the HMRC website is less than clear on this & just focuses on the £40K limit
If I am understanding this correctly - where gross earnings are >= £40K the Annual Allowance (£40K) rule is dominant & Employers contributions would be included in any calculation but where gross earnings are < £40K then max contributions are determined by Earning Limit constraint & Employers contributions are NOT included in the calculation. 
Would you have a useful link on this at all ? 

Thrugelmir

If you earn £20k pa. Then you personally can contribute up to a maximum of £20k.

However your employer could make a contribution of £20k. Which then takes the total contribution to £40k which is the ceiling.

If however your employer only contributes £8k. Then your actual allowed contribution will be limited to £28k.  

Albermarle

Would you have a useful link on this at all ? 
This forum is effectively your useful link 

milton1970

Thanks All - very helpful