Vanguard SIPP - how do I put in more than £40K in a year?

gundo

I've just opened a Vanguard SIPP and looking at it, it says I have a £40K limit but I have worked out that from the previous three years unused pension annual allowance I have in total a possible £60K (this is prior to tax relief i.e. the 25% HMRC adds) that I could add to a pension. But the SIPP would limit me to £40K/1.25 = £32K max. I have a windfall/inheritance that I'm wishing to invest as much as possible in tax sheltered wrappers, I've already maxed out my S&S ISA.

Dazed_and_C0nfused

You don't mention what your pensionable earnings will be in the current tax year.

A crucial factor in determining what you can contribute (and get tax relief)

gundo

Dazed_and_C0nfused said:

You don't mention what your pensionable earnings will be in the current tax year.

A crucial factor in determining what you can contribute (and get tax relief)

So I can't use previous 3 years' unused allowance then once I get to my pension annual allowance this year (which would be £38K)? So basically, if I understand this correctly the previous year's unused allowances are only use if your earnings are over £40K?

SomeMadeUpName

gundo said:

Dazed_and_C0nfused said:

You don't mention what your pensionable earnings will be in the current tax year.

A crucial factor in determining what you can contribute (and get tax relief)

So I can't use previous 3 years' unused allowance then once I get to my pension annual allowance this year (which would be £38K)? So basically, if I understand this correctly the previous year's unused allowances are only use if your earnings are over £40K?

yes, the pensionable earnings limit is within the year only. The annual allowance has a hold over, but it doesn't sound like that is the limiting factor in your case.  You may just have to spread over a few years.

zagfles

gundo said:

Dazed_and_C0nfused said:

You don't mention what your pensionable earnings will be in the current tax year.

A crucial factor in determining what you can contribute (and get tax relief)

So I can't use previous 3 years' unused allowance then once I get to my pension annual allowance this year (which would be £38K)? So basically, if I understand this correctly the previous year's unused allowances are only use if your earnings are over £40K?

No, this is oversimplified and wrong.

The annual allowance is £40k for everyone except very high earners (100k+) and those subject to the MPAA (ie those who've flexibly accessed a pension - google MPAA triggers).

Carry forwards is available to anyone who was in a pension scheme and hasn't fully used previous 3 years' allowances.

Employer and employee contributions to a workplace DC scheme count. As do the gross contributions to a SIPP.

For a DB scheme, it's the deemed increase in pension value, not contributions that count.

OK? That's the annual allowance.

But separate to the annual allowance, there another limit. You can only get tax relief on 100% of your relevant earnings (stuff like employment income). So if you earn £38k after contributions to your workplace scheme, you can only get tax relief on £38k gross into a SIPP. You can theoretically put more in but usually a bad idea, and you'll need to tell your SIPP provider, most won't allow contributions over the tax relief limit.

You still might need to use carry forwards of the annual allowance, eg if your employer contributed £4k to your workplace pension and you contributed zero, you could put £38k gross into a SIPP and your pension input amount for the annual allowance would be £42k (total of all gross contributions). You'll need carry forwards available to do that.

This does cause confusion, even here, even IFAs get it wrong.

gundo

zagfles said:

gundo said:

Dazed_and_C0nfused said:

You don't mention what your pensionable earnings will be in the current tax year.

A crucial factor in determining what you can contribute (and get tax relief)

So I can't use previous 3 years' unused allowance then once I get to my pension annual allowance this year (which would be £38K)? So basically, if I understand this correctly the previous year's unused allowances are only use if your earnings are over £40K?

No, this is oversimplified and wrong.

The annual allowance is £40k for everyone except very high earners (100k+) and those subject to the MPAA (ie those who've flexibly accessed a pension - google MPAA triggers).

Carry forwards is available to anyone who was in a pension scheme and hasn't fully used previous 3 years' allowances.

Employer and employee contributions to a workplace DC scheme count. As do the gross contributions to a SIPP.

For a DB scheme, it's the deemed increase in pension value, not contributions that count.

OK? That's the annual allowance.

But separate to the annual allowance, there another limit. You can only get tax relief on 100% of your relevant earnings (stuff like employment income). So if you earn £38k after contributions to your workplace scheme, you can only get tax relief on £38k gross into a SIPP. You can theoretically put more in but usually a bad idea, and you'll need to tell your SIPP provider, most won't allow contributions over the tax relief limit.

You still might need to use carry forwards of the annual allowance, eg if your employer contributed £4k to your workplace pension and you contributed zero, you could put £38k gross into a SIPP and your pension input amount for the annual allowance would be £42k (total of all gross contributions). You'll need carry forwards available to do that.

This does cause confusion, even here, even IFAs get it wrong.

Thanks for that. I've been led astray by advice I got someone at my USS pension scheme I spoke to. I've now had to cancel the 20K I paid into my Vanguard SIPP because I'm already putting in a lot of AVCs via salary sacrifice (the AVCs are a DC scheme, the main scheme is DB). How annoying.

So my choicee now is to put a small amount into a SIPP and the rest in a GIA and every 12 months cream off £20K from the GIA to max out my S&S ISA. I'm NOT complaining, it's a nice problem to have.

I'm grateful that you explained it. I actually rang the Pensions Advisory Service this morning and they were excellent and also directed me to one of their PDFs on the topic.

It's a pity it's all so convoluted and complicated but then again it's hardly surprising, there's a lot of different circumstances to take into account.