Calculating pension carry forward

confusedpete

Hi,
I am leaving an employer after nearly 10 years. I have started at a new company today (6th May) and I am still on the payroll for the old company also until the end of May.
The former employer is issuing me an exit bonus of around £100k to be paid at the end of May. I want them to pay the majority (80%) of this into my pension, but I'm a little confused about the annual limits, rollover from previous years and tapering etc.
I was wondering if anyone can confirm whether I can pay £80k into my pension in 2021/22 financial year (paid this month) without hitting the limit based on previous carry forward?
Details are as follows. The gross pay and tax deducted figures from my P60s for completed tax years. I have no earned any other income.

Thanks so much for any advice.

2021/22 expected total pension contribution (employer and employee) = £4,437.
2021/22 expected salary = minimum of £120k, could be up to £230k depending on bonus.
2020/21 total pension contribution (employer and employee) = £5,692
2020/21 gross salary £141,942 / tax deducted £48,604 / net £93,338
2019/20 total pension contribution (employer and employee) = £5599 
2019/20 gross salary £181,839 / tax deducted £66,827 / net £115,012
2018/19 total pension contribution (employer and employee) = £3,550
2018/19 gross salary £134,611 / tax deduced £47,390 / net = £87,221

Jeremy535897

See https://www.pensionbee.com/pensions-explained/pension-contributions/how-much-can-i-pay-into-a-pension-each-year

georgehere

I think you realise that whether or not income/tax etc arrives/derives from 1 or 2 employers does not matter ... just add it all up within tax years so you only have 1 number per tax year.
You can use 2021/22 allowance, plus the 3 prior years. In the 3 prior years, you didn't earn enough to trigger tapering  - so you have enough headroom - those 3 years give you £105k carry forward (in addition to 2021/22). You can't pay in more than you earned. Don't forget to claim back higher rate tax relief - once you have a confirmed actual earnings for tax year 2021/22.
If you want more detail - ask the question on the Pension Annuities Forum - or search there as it comes up regularly.

HappyHarry

You have plenty of carry forward available, so yes, you could pay £80k into a pension.
Just to note, if the payment from your previous employer includes redundancy pay, then some of that might not count as earnings this year, for pension purposes. (i.e. the first £30,000 of redundancy pay is tax free and does not count as pensionable earnings).

confusedpete

HappyHarry said:

You have plenty of carry forward available, so yes, you could pay £80k into a pension.
Just to note, if the payment from your previous employer includes redundancy pay, then some of that might not count as earnings this year, for pension purposes. (i.e. the first £30,000 of redundancy pay is tax free and does not count as pensionable earnings).

Thanks, I wasn't sure as the limits in previous years were lower before tapering applied?
There isn't a redundancy but thanks for flagging.
I assume if the employer pays the 80% in, it won't be taxed so I won't need to claim anything through self assessment?
Thanks

Dazed_and_C0nfused

If it is an employer contribution then there is no pension tax relief due and no you wouldn't include an employer contribution on your Self Assessment return.

confusedpete

Hi, just following up on this thread. If my employer chooses to pay this all as salary and not into my pension, would I be right that I’d be no worse off if I added this to my pension myself (before the end of the tax year) and claimed via self assessment? Thanks 

Funkyfreddy

Defined Benefit or Defined Contribution scheme(s) ?

If a DB scheme contributions are not the factor in arriving at your usage of your AA.

confusedpete

My previous work scheme was via Nest which I believe is a DC (this was the one they’d pay into). If I took it all as income I would probably open a SIPP between now and the end of March. Does this make sense? 

kidmugsy

If you can afford it there's an advantage in putting enough into pensions to get your taxable income down below £100k, thus avoiding the effective 60% tax in the band £100k - £125140. If you can't do that this year, because of the exit bonus, perhaps you can do it next year.  This year you might find it convenient to use all your 21/22 allowance (£40k) plus the unused allowance for 18/19, namely £36,450. So that's near enough £80k gross and still leaves you 19/209 and 20/21 to use next tax year when the absence of the exit bonus might make it easier for you to avoid the 60% band.

HappyHarry

confusedpete said:

Hi, just following up on this thread. If my employer chooses to pay this all as salary and not into my pension, would I be right that I’d be no worse off if I added this to my pension myself (before the end of the tax year) and claimed via self assessment? Thanks 

You would pay NI contributions on your salary, so would be worse off. (by 12%, or 2%, or somewhere in between)

Your employer would also pay NI contributions at 13.8% on the salary paid to you, and so would also be worse off. 

If your employer were to pay direct to your pension, you would both save on those NI contributions.