SIPP Contributions alongside NHS DB Scheme

theblueflash

Hey - new’ish here, love learning from all the great posts. 

My wife works part-time in NHS and earns £11400 a year so nil-rate band. She is a member of the NHS Pension Scheme and has been for 20years. 

I’m starting to look at tax efficiencies for us when we retire and lucky enough to be able to contribute to a separate SIPP for my wife with my earnings. How much can we contribute to it annually? and Do we need to factor in NHS Pension contributions in that number or is that considered “separate” ? I believe it would be £11400 (including 25% relief ) ? 

Thanks in advance! 

AlanP_2

£11,400 less the employee contribution she pays to the NHS scheme (ignore any employer contribution).

Then 80% of that can be contributed net to arrive at the correct gross figure once tax relief added.

Dunky62

I am in a similar situation paying into a SIPP for my wife who is in the LGPS.  I thought i had to work out her total pension input amount. i.e.   increase in value of benefits multiplied by 16.  Or am i getting mixed up?   

Dazed_and_C0nfused

Isn't that just for annual allowance purposes, not the amount eligible for tax relief limit?

NedS

Dunky62 said:

I am in a similar situation paying into a SIPP for my wife who is in the LGPS.  I thought i had to work out her total pension input amount. i.e.   increase in value of benefits multiplied by 16.  Or am i getting mixed up?   

That's just for the £40k annual allowance calculation.

With a salary of £11,400pa, the OP's wife is highly unlikely to hit the annual allowance limit, so the relevant limit will be that she may not contribute more than her gross salary, hence @AlanP_2 calculation based solely on employee contributions is correct.

theblueflash

AlanP_2 said:

£11,400 less the employee contribution she pays to the NHS scheme (ignore any employer contribution).

Then 80% of that can be contributed net to arrive at the correct gross figure once tax relief added.

Thanks - is it still 11400 less NHS scheme contributions even if she pays no tax ? I had read on GOV site that if no tax paid due to low income - only the first £2880 gets tax relief? 

Paragraph is here…

If you do not pay Income Tax

You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

• you do not pay Income Tax, for example because you’re on a low income
• your pension provider claims tax relief for you at a rate of 20% (relief at source)

Dazed_and_C0nfused

That information on gov.uk is utter rubbish.

It is actually referring to non earners, not non taxpayers.

She can contribute upto her earnings (less NHS scheme contributions).  With a relief at source scheme she pays 80% of the contribution and tax relief is added by the pension company, courtesy of HMRC.

This is the HMRC guidance,

The maximum amount of contributions on which a member can have relief in any tax year is potentially the greater of:

• the ‘basic amount’ - currently £3,600, or

• the amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year.

Where a member’s relevant UK earnings chargeable to tax are less than £3,600, tax relief on the amount of any contribution over the level of their earnings up to the £3,600 limit can only be given if the contribution is paid to a pension scheme that operates the relief at source (RAS) system.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#qualifying

theblueflash

Thank you for your help so far - much appreciated. Vanguard 60 now set up and £7000 invested that is now £8750 with tax relief. Will keep at that level till we have more accurate salary level towards end of year (my wife is changing roles to lower salary band but nearer home so win on travel costs) 

it did prompt a secondary question - does she have any carry forward ability that exists for Annual Allowance? Meaning I could contribute more to the SIPP or does that not exist in this circumstance ? 

Dazed_and_C0nfused

She may well have carry forward available but at her level of earnings it won't be something she can utilise.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/annual-allowance/

QrizB

Carry forward is only relevant if her gross pay exceeds £40k pa, which seems unlikely in context.

theblueflash

OK - so to be clear, even though my wife has only started contributing to SIPP now - there isn’t a way to “go back” and pay in for previous years where she potentially could have been but didn’t ?  That right? Suspect it is :-)