Pension Rules

zagfles

mears1 said:

Dazed_and_C0nfused said:

So, if this article is accurate and I opened a Sipp now, does it mean I cannot carry forward 2018, 2019, 2020’s allowance? But I could get tax relief on 2021.

I suspect you have misunderstood carry forward.

You can only ever get tax relief for the tax year you make the contribution in.  Carry forward simply allows you, in certain circumstances, to contribute more in a later year.

Are you going to be earning more than £40k in the current tax year or 2022:23?

I agree, I am not really understanding the rules at all of carry over. My earnings would be much less than 40K in the current tax year and 2022 to 2023. I understand I can only get tax relief in this 2021 tax year. But I was lead to believe I could put in the earnings (except the employers and nhs contribution) of the past 3 years into a private pension. So, if I earned £20k and £6k was my nhs contributon (including employer's), I would have £14k x3= £42k to put into the private Sipp?

You can only get tax relief on up to 100% of your earnings this tax year. Period. This is a separate thing to the annual allowance/carry forwards etc. It's discussed here practically every week.

ETA: On the above figures, you'd be able to put in £20k minus YOUR contributions to the NHS scheme (don't include employer's). That should equal your taxable income. That's the gross, so 80% of that for the net cont to a SIPP etc.

PIAs, carry forwards etc apply to the AA. The AA isn't an issue for someone on £20k except in unusual circumstances, so forget about it.

dunstonh

mears1 said:

dunstonh said:

 The nhs scheme ‘s  providers are Standard life and Prudential  who have negotiated a group discount. For standard life  the discount is 0.4%.

That literature is decades old.  It is correct that they have arranged a discount.  However, it was based on a pre 2013 pension (i.e. one that is no longer available).   It's about double the cost of the lowest cost pension options currently.  And in the case of Standard Life, their individual retail pensions are cheaper than the in-house AVC.

That's interesting you can get same thing cheaper on diy platforms!

And IFA platforms too.  

mears1

Thank you everyone for your helpful replies.

mears1

The Sipp providers helpdesk have said that I could put the previous 3 years unused pension contributions into a Sipp. They will automatically apply the 20% tax relief. They were quite definite about the previous 3 years, even though I disagreed with them. Can someone confirm whether this is true? And what happens if I did would Hmrc reclaim the tax relief from me on my tax return or is there a severe penalty? My modest salary will not impact my annual allowance.

Dazed_and_C0nfused

mears1 said:

The Sipp providers helpdesk have said that I could put the previous 3 years unused pension contributions into a Sipp. They will automatically apply the 20% tax relief. They were quite definite about the previous 3 years, even though I disagreed with them. Can someone confirm whether this is true? And what happens if I did would Hmrc reclaim the tax relief from me on my tax return or is there a severe penalty? My modest salary will not impact my annual allowance.

They are wrong.  Did you start by explaining your pensionable earnings were c£20k for the entire tax year?

dunstonh

The Sipp providers helpdesk have said that I could put the previous 3 years unused pension contributions into a Sipp. They will automatically apply the 20% tax relief. They were quite definite about the previous 3 years, even though I disagreed with them. Can someone confirm whether this is true?

No.  As you earn under £40k a year, you cannot use carry forward.

mears1

Thank you for clarifying this.

zagfles

mears1 said:

The Sipp providers helpdesk have said that I could put the previous 3 years unused pension contributions into a Sipp. They will automatically apply the 20% tax relief. They were quite definite about the previous 3 years, even though I disagreed with them. Can someone confirm whether this is true? And what happens if I did would Hmrc reclaim the tax relief from me on my tax return or is there a severe penalty? My modest salary will not impact my annual allowance.

The thing even financial professionals don't seem to understand is that there are two separate limits which are completely independant from each other. They come from different legislation, apply to different things, and have different rules.

1) The annual allowance, usually £40k, where you need to consider PIAs not contributions for DB schemes, where you need to consider employer and employee/personal contributions for DC/SIPPs etc, and which has carry forwards.

2) The tax relief limit, which is your earnings/£3600, which does not have carry forwards, which ignores employer contribitions & PIAs.

For lower earners, 1 is usually irrelavant because they are restricted by 2.

For 2, see https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

Both these limits are "soft", ie it's perfectly legal to exceed them, it's just that there are adverse tax consequences if you do which usually makes it a bad idea. And the consequences are completely different again. If you exceed 1, you need to do a tax return and declare the excess contribution and pay extra tax. For 2 you need to tell the SIPP provider not to claim tax relief. Most providers won't accept contributions on that basis, so in practice it's really a hard limit. If you accidently exceed this limit you can ask for a refund.

zagfles

dunstonh said:

The Sipp providers helpdesk have said that I could put the previous 3 years unused pension contributions into a Sipp. They will automatically apply the 20% tax relief. They were quite definite about the previous 3 years, even though I disagreed with them. Can someone confirm whether this is true?

No.  As you earn under £40k a year, you cannot use carry forward.

Rubbish. See you can't even trust IFAs to get this right. OP is in a DB scheme, so could probably make use of carry forwards on income above £30k. Not relevant to OP now but may be they get a payrise/do more hours, or others in a similar position. You need to consider the limits separately instead of incorrect simplistic statements. There is no rule that says you can't use carry forwards if you earn under £40k. See https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/interaction-of-tax-relief-and-annual-allowance/

mears1

zagfles said:

dunstonh said:

The Sipp providers helpdesk have said that I could put the previous 3 years unused pension contributions into a Sipp. They will automatically apply the 20% tax relief. They were quite definite about the previous 3 years, even though I disagreed with them. Can someone confirm whether this is true?

No.  As you earn under £40k a year, you cannot use carry forward.

Rubbish. See you can't even trust IFAs to get this right. OP is in a DB scheme, so could probably make use of carry forwards on income above £30k. Not relevant to OP now but may be they get a payrise/do more hours, or others in a similar position. You need to consider the limits separately instead of incorrect simplistic statements. There is no rule that says you can't use carry forwards if you earn under £40k. See https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/interaction-of-tax-relief-and-annual-allowance/

Pls confirm my understanding that as I only earn 17k before tax, I cannot put the last 3 years of earnings into a pension. But can put in 2021's contribution (and that will be my earnings minus my contribution of my defined benefit's occupational pension).

Also, what's the minimum number of years  it is worth doing for before retirement , eg  for 3 years, when you considering the charges for Sipps if use a low cost platform, of course?