Could someone sanity check my contribution limits workings?

Qyburn

Hi,

I think I have this correct but I want to make completely sure.  The plan here is to make a final contribution to the pension plan, the totals this tax year will be in round numbers ..

(A) Salary 24,500

(B) Employee pension contributions £2,950

(C) Employer contributions £6,120

If I understand correctly I need to make sure I don't breach either of two limits.  I can't contribute more than the taxable salary, which means I could contribute up to £21,550 (gross).  If my understanding is correct this will also stay within the second limit of £40K for total of employee and employer contributions.

Do I have this correct?

Thanks,

Albermarle

How do you make your pension contributions with work?
Relief at source
Net pay
Salary sacrifice
How will you make this extra contribution? Via work or separately?
 By the way you have a VERY generous employer !

Secret2ndAccount

So 21,550 if your employer takes it before tax, or 17,240 if you are paying it out of take-home.

NedS

Albermarle said:

How do you make your pension contributions with work?
Relief at source
Net pay
Salary sacrifice
How will you make this extra contribution? Via work or separately?
 By the way you have a VERY generous employer !

Exactly - is this a DB pension, if so the calculations are very different for the £40k AA limit.

Qyburn

Thanks everyone. 

The employers scheme is defined benefit (SPPA CARE 2015). Getting any sort of figures out of them is a right pain and takes ages.  However the employee and employer contributions are itemised on the payslip. Employee contribution comes off gross pay before tax is calculated. I admit to some uncertainty about the correctness regarding the employer contributions and the annual allowance, but it seems to me that (a) it doesn't appear to be anywhere near £40K even if I max out the extra contribution, and (b) this can be carried over from previous years (can't it?)

The extra contribution will be made separately, into a private pension scheme so I'll pay the net amount as noted by S2A.

Albermarle said:

How do you make your pension contributions with work?
Relief at source
Net pay
Salary sacrifice
How will you make this extra contribution? Via work or separately?
 By the way you have a VERY generous employer !

Secret2ndAccount

For a DB pension the annual allowance calculation is more complicated. You need to find the pension input amount which, hopefully, is on your payslips. However it might be a situation where you can't know the annual total accurately until it's too late. That said, you are a fair way shy of 40k, so you are probably okay. If you didn't hit the full 40k last year (or 2 years before) you can use up all of that unused allowance too. So, in practical terms in this case, your limit is still going to be your salary.

NedS

Qyburn said:

Hi,

I think I have this correct but I want to make completely sure.  The plan here is to make a final contribution to the pension plan, the totals this tax year will be in round numbers ..

(A) Salary 24,500

(B) Employee pension contributions £2,950

(C) Employer contributions £6,120

If I understand correctly I need to make sure I don't breach either of two limits.  I can't contribute more than the taxable salary, which means I could contribute up to £21,550 (gross).  If my understanding is correct this will also stay within the second limit of £40K for total of employee and employer contributions.

Do I have this correct?

Thanks,

Your calculations for the first limit of not exceeding your earnings are correct, but because it is a DB Career Average scheme, your assumptions for the AA are not correct. If you are planning on making further large contributions into your DB CARE scheme this tax year, you may well exceed the £40k Annual Allowance.

Have a read of this thread - it is one of the better discussions and contains some worked examples of how to calculate your PIA for the AA:

https://forums.moneysavingexpert.com/discussion/6370123/is-cpi-included-when-calculating-pension-input-for-annual-allowance-alpha-defined-benefit-pension/p1

Qyburn

Thanks, this all sounds hellish given how difficult and slow it is getting even simple questions answered by SPPA.

However I must say I'm finding it hard to believe that on a salary of £24.5K this tax year, the employer's contributions would be considered equivalent to £18.5K.

NedS

Qyburn said:

However I must say I'm finding it hard to believe that on a salary of £24.5K this tax year, the employer's contributions would be considered equivalent to £18.5K.

It's not really the employer's contributions that are being valued, but the increase in value of your DB CARE benefits over the year, which in large part may be due to the way this is calculated/revalued and the difference in inflation between last year (CPI 3.1%) and this year (CPI 10.1%). If your scheme uses uncapped CPI to revalue your pension, then there is going to be a large increase in April 2023 which will be reflected in your AA.

Qyburn

Thanks.  I have found some information that may help, there's nothing called "Pension Input Amount", but each annual benefit statement gives a total value in £ and also as a percentage of the Lifetime Allowance.  Would it be reasonable to say that the increase in that figure from year to year might bear some resemblance to the PIA and thus the figure that mustn't exceed £40K?

The figures increase by roughly £13K each year from 2019 to 2022.

Of course I also need to take into account contributions into the completely unrelated Personal Pension.

For context the plan is for both to retire at the end of this calendar year, so the employer's scheme will run for only 9 and not 12 months in this current tax year. My calculations in the first post are all on that basis.

Secret2ndAccount

Yes. Remember the 40k is the total of all contribs, including those outside this scheme.
You should be able to back out the growth element from the numbers. For example 3k employee + 6k employer +4k inflation = 13k. Triple the 4k for this year, and you would still only be at 21k. So you could add a further 19k including tax relief to a personal pension without topping the 40k limit. Also seems likely you have maybe up to 80k of carry forward available from the last 3 years, so you aren't going to be affected by annual allowance unless both inflation, and your large contributions stay high for several years.