Advice needed with calculating whether I exceeded my relevant earnings limit

Yukster

I would be grateful for your advice regarding the following

I have a DB NHS pension and I pay into a SIPP as well but unfortunately, I may have shot myself in the foot by making payments in excess of my relevant earning for the year. Initially, I thought I could apply to my SIPP provider for a refund of excess contributions lump sum because the HNS growth amount + the SIPP contributions made were higher than my net taxable earnings. But then I was advised by my SIPP provider that this isn't possible because I can only compare my SIPP contributions to my net taxable earning, not my SIPP contributions + my NHS pension growth amount. I sought advice from an accountant who deals with NHS employees who have an NHS pension and a SIPP and she advised the following:

Your taxable pay for your NHS employment is already reduced for your employee pension contributions, as your gross pay, less pension contributions, equals your taxable pay. You get tax relief at source on these contributions. Your taxable pay is what makes up your net relevant earnings for comparison against pension contributions and tax relief thereon. Therefore, as your net relevant earnings have already been reduced for your NHS employee pension contributions, you only then compare your other pension contributions to your net relevant earnings, in your case the SIPP. Your net relevant earnings.

I have two questions

1. do you think this is correct?

2. The implication is that although my NHS employee pension contribution doesn't count when calculating whether I exceeded the net relevant earnings limit as stated above, the NHS growth figure which is more than double that amount does count when calculating whether I exceeded my pension allowance but it does count when calculating whether i exceeded my yearly allowance. Is that the way it is supposed to be?

MX5huggy

There are 2 limits, they are separate and should be considered in isolation. 

The tax relief limit is your earnings. The NHS pension input amount is not part of this, there is no carry forward from previous years available.

The Annual Allowance £40000, NHS PIA does use this up along with your other pension contributions. There is carry forward from previous years available. 

I think you have not exceeded either of these.

zagfles

Yukster said:

I would be grateful for your advice regarding the following

I have a DB NHS pension and I pay into a SIPP as well but unfortunately, I may have shot myself in the foot by making payments in excess of my relevant earning for the year. Initially, I thought I could apply to my SIPP provider for a refund of excess contributions lump sum because the HNS growth amount + the SIPP contributions made were higher than my net taxable earnings. But then I was advised by my SIPP provider that this isn't possible because I can only compare my SIPP contributions to my net taxable earning, not my SIPP contributions + my NHS pension growth amount. I sought advice from an accountant who deals with NHS employees who have an NHS pension and a SIPP and she advised the following:

Your taxable pay for your NHS employment is already reduced for your employee pension contributions, as your gross pay, less pension contributions, equals your taxable pay. You get tax relief at source on these contributions. Your taxable pay is what makes up your net relevant earnings for comparison against pension contributions and tax relief thereon. Therefore, as your net relevant earnings have already been reduced for your NHS employee pension contributions, you only then compare your other pension contributions to your net relevant earnings, in your case the SIPP. Your net relevant earnings.

I have two questions

1. do you think this is correct?

2. The implication is that although my NHS employee pension contribution doesn't count when calculating whether I exceeded the net relevant earnings limit as stated above, the NHS growth figure which is more than double that amount does count when calculating whether I exceeded my pension allowance but it does count when calculating whether i exceeded my yearly allowance. Is that the way it is supposed to be?

It's not worded very well but seems to be correct. Your pension growth amount (ie pension input amount) is not relevant for the "relevant earnings" limit on tax relief. Only for the annual allowance.

So for example, say your salary is £35k, your contribution to the NHS scheme is £5k, and the PIA (ie increase in pension value) of your NHS pension is £15k.

Your taxable (P60) income would be £30k (ie salary minus your contributions to the NHS scheme). You could pay £30k gross into a SIPP (ie £24k net plus £6k tax relief claimed by the SIPP provider). Unless you put in more than this you have not exceeded the relevant earnings limit and you can't get a refund.

But if you did put in £30k gross, your total PIA is now £45k (£30k SIPP plus £15k NHS PIA). You have exceeded the annual allowance for this year but you can carry forwards any unused annual allowance from previous years, provided you were in a  pension scheme then. So if you made no SIPP contributions in previous years and the PIA to the NHS scheme was about the same, you'll have bags of carry forwards. You don't need to do anything to use carry forwards, just keep records in case HMRC query it. 

However, if you carried on making £30k contributions to the SIPP in future years, you'll eventually use up all your available carry forwards and will exceed the annual allowance. If you exceed the available AA (ie accounting for available carry forwards) you can't get a refund, you have to do a tax return and declare it, and pay extra tax.

Different rules apply for very high earners (£110k+) and those who've already flexibly accessed pensions

Yukster

This is what happened in my case. I made two errors, one when miscalculating how much allowance I had left,  and consequently, I went over my AA. The second error was when I assumed that both the NHS pension growth amount and SIPP contributions count towards the relevant earning limit. But I understand the situation now and is am feeling very annoyed with myself for being such a twonk.  

PS
My apologies for the unclear workding.