Carry Forward Query

McGim

Hi Folks

Forgive the complete ignorance on my part. I have a nice problem of having circa £100k i want to invest into my pension. I have spoken to a couple of financial advisors who suggested I use the carry forward mechanism given I have about £32k of unused allowance for each of the past 3 years. 

One advisor wants £2k to organise and the other wants an annual 2% fee and bring their pension over to them for minimum 6 years. 

When I read online everything I read seems to suggest it happens automatically. (i.e I put the £100k over to my provider and it just get backdated accordingly filling up past allowances). So a few questions

- Is this correct? How the hell can this guy want £2k when no effort involved?
- Will the £100k turn into £125k instantly?
- As a high rate taxpayer can I then claim back more at next tax return?

thanks in advance!

Albermarle

What is your salary going to be this tax year? You can not add more than your gross salary . Presume the financial advisors mentioned this ?

When you add money to a pension , it needs to be invested correctly for your personal circumstances and risk profile .
The £2K is because the advisor will have to ask a lot of questions and follow through a regulated process to show that the advice given and the investments suggested are  appropriate for you . However an ongoing fee of 2% is clearly excessive.

Otherwise just sort it all out yourself for free. Presume you have an active workplace pension you are already contributing to  ?

Dazed_and_C0nfused

the other wants an annual 2% fee and bring their pension over to them for minimum 6 years. 

SJP by any chance?

When I read online everything I read seems to suggest it happens automatically. (i.e I put the £100k over to my provider and it just get backdated accordingly filling up past allowances

Whatever you read you've misunderstood.

There is nothing to be backdated, you only ever get tax relief on pension contributions for the tax year you make the contribution in.

All carry forward allows (where it is applicable) is for you to make larger contributions in the current tax year.  It has no bearing whatsoever on any earlier tax year.

dunstonh

One advisor wants £2k to organise and the other wants an annual 2% fee and bring their pension over to them for minimum 6 years. 

I doubt that the 2% annual fee is correct.   Typically adviser fees range from 0.5% to 1.0%.   I suspect you have the bottom line there.  2% is still expensive as a bottom line.    That is in SJP territory.  £2k initial for £100k is the sort of ballpark you expect.

How the hell can this guy want £2k when no effort involved?

What makes you think there is no effort?   Do you work for nothing?

- Will the £100k turn into £125k instantly?

When using carry forward, you work on the gross contributions. Not the net.  Otherwise you risk over contributing.

Dazed_and_C0nfused

You haven't actually said if you are eligible to contribute £125k (gross)?

If you are then you pay £100k and the pension company adds £25k, courtesy of HMRC.

Any additional tax relief due (which is not an extra 20%) will be determined from your 2022:23 Self Assessment and you will receive the benefit of it via your 2022:23 Self Assessment calculation.

SJP may be the best option for you however I would suggest you do some research before signing up with them.  2% and a six year tie in seems to be good work for them but not necessarily you.

McGim

Dazed_and_C0nfused said:

You haven't actually said if you are eligible to contribute £125k (gross)?

If you are then you pay £100k and the pension company adds £25k, courtesy of HMRC.

Any additional tax relief due (which is not an extra 20%) will be determined from your 2022:23 Self Assessment and you will receive the benefit of it via your 2022:23 Self Assessment calculation.

SJP may be the best option for you however I would suggest you do some research before signing up with them.  2% and a six year tie in seems to be good work for them but not necessarily you.

So by eligible do you mean I have funds and the carry forward is there? 

Well yes I have the cash sitting and (given I only contributed £7k of the allowed £40k in last 3 years) I have £100k in unused allowance accumulated. 

So essentially I just add the £100k to my pension and save £2k going to an advisor?

biscan25

As others have said, the maximum you can contribute in a given tax year is your earnings in that year, regardless of carry forward. So unless you earn over £100k in 2022/23, then no, you cannot just dump in £100k.
Even if you did earn over £100k, it would be best to organise your contributions in a way that maximises marginal tax relief.

Dazed_and_C0nfused

To add £125k (gross) to a SIPP isn't just about having the (net) funds available and carry forward.

How much do you expect to earn in the current tax year?

Have you read up o the annual allowance rules and earnings restrictions?

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/interaction-of-tax-relief-and-annual-allowance/

McGim

Dazed_and_C0nfused said:

To add £125k (gross) to a SIPP isn't just about having the (net) funds available and carry forward.

How much do you expect to earn in the current tax year?

Have you read up o the annual allowance rules and earnings restrictions?
I expect to earn between £200k and £300k depending on performance.

I think this answers my questions that it isnt as simple as first thought and the £2k is maybe worth spending

QrizB

McGim said:

Dazed_and_C0nfused said:

To add £125k (gross) to a SIPP isn't just about having the (net) funds available and carry forward.

How much do you expect to earn in the current tax year?

Have you read up o the annual allowance rules and earnings restrictions?
I expect to earn between £200k and £300k depending on performance.

I think this answers my questions that it isnt as simple as first thought and the £2k is maybe worth spending

TBH if you're earning £2-300k pa and are only making £8k pension payments, advice will be well worth it.

MallyGirl

The fundamental is that you must have sufficient gross earnings in the current year to contribute that much to the pension. If you earn £80k (for example) then that is the max you can contribute, regardless of what carry forward you have.