Setting up a SIPP - help please

greenleaves70

I'm a part-time PAYE employee who has paid personal tax via self-assessment for the past 5 years due to income from property.

I've sold the property (CGT paid off) so will not be paying personal tax going forward. I want to invest some of the sale proceeds in a SIPP.

I've been paying into a workplace pension, have chosen my platform and will fund it with a personal contribution of £2,880 per year going forward. So I understand that bit.

My head is spinning over what seems like it should be a very easy question to answer.

Please can anyone tell me in very simple terms how I work out the maximum I can invest in a SIPP for this current tax year?

I feel really stupid - I don't know if this is something I can bother my accountant with or if I need to work it out for myself.

I made an appointment with the moneyhelper service (as I have a small defined benefit pension pot that I'm keeping) but cancelled it because I got too anxious.

Reluctant to get in touch with a financial adviser before I understand a bit more, for fear of being further confused.

Dazed_and_C0nfused

From what you have posted the only thing that counts for pension contribution purposes is your part time job.

So how much do you expect your P60 will show your taxable pay to be for the tax year to April 2022?

And how much will you contribute to your employer's pension?  

And what method is used for those contributions, relief at source (like the SIPP will be) or net pay?

AlanP_2

Carry forward is very unlikely to apply unless your P/T job pays extremely well.

Your PERSONAL pension contributions, to both SIPP and employer scheme, are limited to your "relevant income" which is basically taxable salary.

How are your work pension contributions taken? (a) Is your taxable pay reduced by pension contribution, or (b) is tax relief added to your pot at the provider end?

(a) will reduce your taxable salary so that is the limit on your GROSS SIPP contribution.

(b) calculate limit for the SIPP by subtracting your pension contribution + tax relief added by provider from your salary. The result is the limit on your GROSS SIPP contribution.

Think / calculate in GROSS terms e.g. you refer to £2880 per year contributions going forwards, but you probably mean £3600, with £720 coming from tax relief.

HMRC and pension rules use that gross figure (£3600 in that example) so best to start any calculations with that in mind.  

greenleaves70

Thank you for your reply

Pay from employment £8743

Pension contributions £607.79

Method for pension contributions is salary sacrifice but I don't understand what that means.

greenleaves70

AlanP_2 said:

Carry forward is very unlikely to apply unless your P/T job pays extremely well.

Thanks. I took that bit out because I remembered someone had already answered that for me previously.

greenleaves70

How are your work pension contributions taken? (a) Is your taxable pay reduced by pension contribution, or (b) is tax relief added to your pot at the provider end?

I have no idea

(a) will reduce your taxable salary so that is the limit on your GROSS SIPP contribution.

(b) calculate limit for the SIPP by subtracting your pension contribution + tax relief added by provider from your salary. The result is the limit on your GROSS SIPP contribution.

Unfortunately this is just gobbledegook to me. I feel really stupid.

Albermarle

greenleaves70 said:

Thank you for your reply

Pay from employment £8743

Pension contributions £607.79

Method for pension contributions is salary sacrifice but I don't understand what that means.

Normally, your employer pays their contribution and you pay your contribution as two separate items. However with salary sacrifice your salary is reduced and your employer makes an increased contribution ( and you make no separate contribution).


This means that you can contribute £8743 gross to a separate pension. This means you can add £6,994 and tax relief of £1,748 will be added by the pension provider.
It may be easier if you just made this lump sum payment to your workplace pension, rather than opening a new pension/SIPP.
You would need to check with them directly if that would be OK ( it should be but worth checking)

Dazed_and_C0nfused

greenleaves70 said:

Thank you for your reply

Pay from employment £8743

Pension contributions £607.79

Method for pension contributions is salary sacrifice but I don't understand what that means.

Salary sacrifice means you aren't contributing to a pension.  You have agreed to a lower salary in return for your employer contributing to the pension.

That's often the best option however if you aren't going to be a taxpayer in the future you will miss out on any tax relief as having a lower salary won't be of any benefit tax wise (not on those figures anyway).

greenleaves70

Albermarle said:

Normally, your employer pays their contribution and you pay your contribution as two separate items. However with salary sacrifice your salary is reduced and your employer makes an increased contribution ( and you make no separate contribution).
It can be a benefit in lower NI payments.

However you have stated above that you have separate pension contributions , which would normally mean it is not a salary sacrifice arrangement . Can you check again ?

Thanks. I checked again.

On my payslip my taxable pay is my gross pay minus the pension contribution. So the method is net pay if I'm understanding this correctly.

Dazed_and_C0nfused said:

Salary sacrifice means you aren't contributing to a pension.  You have agreed to a lower salary in return for your employer contributing to the pension.

That's often the best option however if you aren't going to be a taxpayer in the future you will miss out on any tax relief as having a lower salary won't be of any benefit tax wise (not on those figures anyway).

I've just given up my job, so will no longer be contributing to the pension.

As far as I understand, my max contribution to a SIPP for next year will be, as AlanP_2 said, £3600, minus any contribution my employer made to my workplace pension between April and August 2022.

My max contribution to a SIPP for this current tax year (up to April 2022) is reduced by the amount my employer contributed to my workplace pension last year - so £3600-608.

Do I have that right?

AlanP_2

No.

Your limit this year is your taxable income, so either £8743 or (8743 - 607.79). If your last payslip show's a "taxable" number it will be that.

You can pay in 80% of that and the SIPP provider will claim the balance for you as tax relief.

Next tax year, with no relevant income, the £3600 limit will apply.

greenleaves70

AlanP_2 said:

No.

Your limit this year is your taxable income, so either £8743 or (8743 - 607.79). If your last payslip show's a "taxable" number it will be that.

You can pay in 80% of that and the SIPP provider will claim the balance for you as tax relief.

Next tax year, with no relevant income, the £3600 limit will apply.

Thank you for your patience with a pensions doofus  - this is incredibly helpful. So relieved to finally have an answer!!!