Calculating Pension Carry Forward

carrspaints

Hi. I have received a letter from my pension provider, Legal & General, stating that I am on track to exceed the annual pension contribution allowance (£40k)

I always thought you could carry forward unused pension allowance from the past 3 year period, but this letter has me thoroughly confused. It has links to .gov.uk for working out "threshold income", whatever this means.

My salary is currently £55,543. I am paid on the 15th of each month. Some years a get a bonus which I have and will continue to add to my pension pot if the allowance allows for this. My previous contributions, including employer contributions have been as follows:

2018/19 - £18,299.04

2019/20 - £18,705.36

2020/21 - £19,055.16

2021/22 - £41,775.72

2022 YTD £24,948.00

Have I missed something here? My calculations seem to confirm that I have an unused annual allowance of £35,997. If this is correct, why would my pension provider be advising me I am on track to exceed the allowance? Or do they just assume I have used up my previous years allowances?

Thanks

Albermarle

Hi. I have received a letter from my pension provider, Legal & General, stating that I am on track to exceed the annual pension contribution allowance (£40k

I assume that this kind of warning is generated automatically. 

They will not take account of previous years contributions/carry forward. They can not do that anyway, as they have no idea if you have contributed to any other pensions.

Troxy

They will look at this year in isolation and compare your contributions + forecast to end of tax year based on current position against £40k. If your previous years contributions are as stated then it looks like you have nothing to worry about. Just be aware that the other limit is your earnings in the tax year

carrspaints

Troxy said:

They will look at this year in isolation and compare your contributions + forecast to end of tax year based on current position against £40k. If your previous years contributions are as stated then it looks like you have nothing to worry about. Just be aware that the other limit is your earnings in the tax year

Much appreciated. Yes,I am  aware my contributions cannot exceed my annual salary (I assume this includes any bonus?). My company also said I need to have a minimum living wage (words to that effect), i.e., I can only contribute as much as would allow me to have enough take-home salary to live off. I think the number they gave me was around £16k/pa

Troxy

carrspaints said:

Much appreciated. Yes,I am  aware my contributions cannot exceed my annual salary (I assume this includes any bonus?). My company also said I need to have a minimum living wage (words to that effect), i.e., I can only contribute as much as would allow me to have enough take-home salary to live off. I think the number they gave me was around £16k/pa

Yes, annual salary includes bonus. 

Sounds like you’re using salary sacrifice in which case your company is contributing not you (sounds odd but true), in which case total contributions can exceed your salary (e.g. original salary = 55k, you sacrifice into your pension 30k therefore your salary is now 25k and pension contributions are 30k).
on the National Minimum Wage, it’s currently £9.50 hr and your company should calculate that at each pay interval (monthly if paid monthly etc) and do further calculations based on any sick leave, holiday pay etc. It isn’t entirely straightforward unfortunately

Albermarle

Do not forget that with salary sacrifice, the employer payment to the pension also includes the company's contribution, as well as the employees sacrificed salary.

Mick70

Just run over how the 3 yr rule works again ?  The unused allowance of £36k?

zagfles

Ignore stuff like "threshold income", that only affects very high earners who are subject to the AA taper.

This year you can only carry forwards unused allowance from 2019/20 and 2020/21 (as 2018/19 is too far back and you've used all 2021/22), but that'll give you over £80k in total including this year's allowance.

You can use an AA calculator like HL's: https://www.hl.co.uk/pensions/contributions/carry-forward-rule/annual-allowance-calculator

Note the tax relief/earnings limit as well (which has no carry forwards) but you're not affected by that if you only contribute to the company pension by salary sacrifice. It would only be an issue if you made additional contributions where tax relief is claimed by the scheme, eg to a SIPP (or to your workplace pension outside of sal sac using relief at source).