Help! Calculating pension contributions in order to max out my allowance

Parky2017

I am having great difficulty in calculating what (if anything) I am still able to pay into my company pension scheme during this tax year.

My pension pot is somewhat below where I would like it to be at the age of 45. Since I have some savings with which to put towards my long-term future, my aim is to maximise my pension contributions by putting 100% of my annual salary into my pension during this 22-23 tax year.

As you can imagine, I would like to achieve maximum tax relief without going over my allowance and thereby incurring an avoidable tax burden.

I have recently been awarded a small pay rise. I've also recently been moved into a Salary Sacrifice scheme. Thus my previous calculation method is no longer appropriate. I am having particular problems understanding where and how to factor in tax relief.

Any advice would therefore be most welcome! Thank you in advance for your patience and understanding.

• I'm a basic rate taxpayer.
• My gross annual salary is £20,000 (a).
• This results in an employee contribution of 6.1% ie: £101.67 (b) of my gross monthly salary.
• Employer's monthly contribution is 8% ie: £133.33 (c) of my gross monthly salary.
• Since moving to a SS scheme, only one single figure is now automatically applied to my pension. That is the employer payment via monthly payroll of £171.69 (d).

I have elected to Salary Sacrifice down to the National Minimum Wage. Because of the NMW, it is not possible to raise my employee contribution any higher.

I am obviously able to make ad-hoc personal contributions into my pension and have done so.

During the present tax year so far:

• I have already made personal contributions totalling £13,029.45 (e) (before tax relief) which has translated into £16,286.81 (f) (after tax relief).
• My employer has already contributed a gross amount of £817.91 (g).

Bearing in mind that I have already made significant personal contributions (e / f) into my pension this tax year AND that automatic monthly contributions (d) will continue to be made by my employer...

How much do I still need to contribute in order to reach 100% of my annual UK earnings?
What are the targets with and without tax relief?

And crucially, how are these figures calculated?

Is is possible that I have already exceeded my annual contribution limit?

Many thanks for any nuggets of advice you may be able to give. I appreciate that I have likely made all this sound far more complex than it needs to be, but I'm really struggling to get my head around it. There must be a "simple" formula I can apply in order to check that I'm on track?!

Thank you again, most sincerely.

El_Torro

So far this tax year you have contributed £17,104.72, including tax relief and employer contributions. Assuming you will earn £20k this tax year you can contribute a further £2,895.28

2895.28 x 0.8 = £2,316.22. This is the amount you can contribute yourself, assuming your platform claims back 20% tax relief.

You also need to take into account how much more your employer will contribute between now and the end of this tax year. If it's more than £2,895.28 then you have already exceeded the amount you can get tax relief on. If it's less than £2,895.28 you just need to calculate the difference to see how much more you can contribute yourself.

Dazed_and_C0nfused

Parky2017 said:

I am having great difficulty in calculating what (if anything) I am still able to pay into my company pension scheme during this tax year.

My pension pot is somewhat below where I would like it to be at the age of 45. Since I have some savings with which to put towards my long-term future, my aim is to maximise my pension contributions by putting 100% of my annual salary into my pension during this 22-23 tax year.

As you can imagine, I would like to achieve maximum tax relief without going over my allowance and thereby incurring an avoidable tax burden.

I have recently been awarded a small pay rise. I've also recently been moved into a Salary Sacrifice scheme. Thus my previous calculation method is no longer appropriate. I am having particular problems understanding where and how to factor in tax relief.

Any advice would therefore be most welcome! Thank you in advance for your patience and understanding.

• I'm a basic rate taxpayer.
• My gross annual salary is £20,000 (a).
• This results in an employee contribution of 6.1% ie: £101.67 (b) of my gross monthly salary.
• Employer's monthly contribution is 8% ie: £133.33 (c) of my gross monthly salary.
• Since moving to a SS scheme, only one single figure is now automatically applied to my pension. That is the employer payment via monthly payroll of £171.69 (d).

I have elected to Salary Sacrifice down to the National Minimum Wage. Because of the NMW, it is not possible to raise my employee contribution any higher.

I am obviously able to make ad-hoc personal contributions into my pension and have done so.

During the present tax year so far:

• I have already made personal contributions totalling £13,029.45 (e) (before tax relief) which has translated into £16,286.81 (f) (after tax relief).
• My employer has already contributed a gross amount of £817.91 (g).

Bearing in mind that I have already made significant personal contributions (e / f) into my pension this tax year AND that automatic monthly contributions (d) will continue to be made by my employer...

How much do I still need to contribute in order to reach 100% of my annual UK earnings?
What are the targets with and without tax relief?

And crucially, how are these figures calculated?

Is is possible that I have already exceeded my annual contribution limit?

Many thanks for any nuggets of advice you may be able to give. I appreciate that I have likely made all this sound far more complex than it needs to be, but I'm really struggling to get my head around it. There must be a "simple" formula I can apply in order to check that I'm on track?!

Thank you again, most sincerely.

One crucial thing to remember now is that you no longer get any pension tax relief.

Salary sacrifice means you aren't contributing to the pension, you are agreeing to a lower salary in return for increased employer contributions and there so no tax relief due on employer contributions.  

The benefit for you is that you don't have the income to pay tax (or NI) on in the first place.

If you make additional personal contributions via relief at source method then that tax relief does need to be factored in.

Secret2ndAccount

El_Torro said:

So far this tax year you have contributed £17,104.72, including tax relief and employer contributions. Assuming you will earn £20k this tax year you can contribute a further £2,895.28

2895.28 x 0.8 = £2,316.22. This is the amount you can contribute yourself, assuming your platform claims back 20% tax relief.

You also need to take into account how much more your employer will contribute between now and the end of this tax year. If it's more than £2,895.28 then you have already exceeded the amount you can get tax relief on. If it's less than £2,895.28 you just need to calculate the difference to see how much more you can contribute yourself.

Definitely disagree with this because you've added together employer and personal contributions. Employer contribs don't detract from what the individual can contribute. (There is a total limit of 40k for all contribs together, but let's not worry about that in this case)

OP, I don't think we've got enough info here to give an exact answer. When you use SalSac, your earnings go down. Your employer keeps some of your salary and uses it to buy pension for you. So I don't believe your 'relevant earnings' are 20k any more. It will be 20k less what your employer keeps back. That's not going to be £171.69 (d) because that probably includes the empoloyer's contrib, and maybe some NI if they refund it to you.
So you need to look at your pay packet and figure out what your new salary is. It looks like that changed recently, so you need to go month by month, April to March and add up your total salary (maybe 20k/12 in the early months, and 20k/12-sacrifice now?)
Those total relevant earnings will be the total you can contribute including the tax relief. Don't worry about employer contribs, and that includes all the money they've contributed due to your SalSac. Now add up the emplpoyee contribs from the pay packets. There won't be any now you are SalSac-ing, but before that you did make personal contribs, it seems. Probably those have been taken before the tax is deducted so the full amount has gone into your pension, but you need to look closely at the payslip to make sure. Otherwise, the pension will have added 25% for tax relief later. Either way, you know the total including relief that ended up in the pension. You know your personal pension contrib (f), so you know your total contribs (not your employer's) so far. You can add just enough so that your personal contribs + the tax relief = your total earnings.
Looks like you are getting close already, but not over. If your monthly pay is very consistent you might be able to work it out in advance. Otherwise wait til March and put in a final tweak if you want to absolutely max out your pension.

If your personal contribs are, as I suspect, taken off before the tax is worked out, you don't want to keep paying them all into the work scheme. Once your pension contribs take your remaining earnings below 12570/yr, that will stop giving you any tax relief. Better to open a SIPP, and pay into it from your take-home pay.

Parky2017

Thank you for taking the time and trouble to respond so comprehensively, El Torro, Dazed_and_C0nfused, and Secret2ndAccount. Your kindness and patience is very welcome.
I will admit to needing to read and re-read your answers in order to get a better understanding of what is required; I'm barely keeping my head above water here. But I do think from what you've said that ultimately it does boil down to a reasonably simple formula at heart.

Between April and July (inclusive) my salary was £18,600. This was before the new Salary Sacrifice scheme took effect. During each of those specific months, my employee contribution was £105.40 (net) which translated into £131.75 with tax relief added. My understanding is that the tax already deducted during payroll was re-added later by my pension provider.
During the same period, my employer paid in £124 monthly. These two types of automated contribution appeared separately on my pension plan. Now of course (under SS), only the single "employer payment" is shown. This is all correct and expected, I believe. I mention them only because it might help to clear things up a bit.

At the same time, I was making additional payments independently. I plan to add more of these now that my salary has been increased to £20k. I have recently made a couple of small independent contributions (outside of the payroll process) and they have indeed attracted tax relief.
Clearly - as you rightly say - I will still need to dig into the figures a little deeper.
In all likelihood, I may just add a lump-sum of say £1500 that would comfortably fall beneath my yearly maximum, without exceeding it.

It's astounding and very reassuring to know that strangers can offer such kind assistance, so my hearty thanks once again.