Retiring in days but maxing tax efficient benefits

Wsb5tails

I leave my £80k a year job at the end of December having paid £1333 in to my Pension per month via salary sacrifice.  The plan is to start taking my DB Pension of £14k a year from April.

I have unused Pension Annual Allowance over the last 3 years (double checked on Gov calculator) of £34k.  That's over the current year plus the previous 2

I've been a 40% taxpayer for many years.

So my question is about putting £20k of my current savings into my DC Pension to get the 20% (hopefully 40% tax) added to my funds.  My employer contributed  £666.  Do I have to have paid 40% tax on at least £40k to get that credi. Is it reasonble to think I can get that extra 20% credited to my DC Pension in this tax year and if I can't, does that impact next year's opportunity to add £2880.

I don't intend to touch my DC Pension for at least 5 years since it currently is worth £10k less that I have deposited.

Dazed_and_C0nfused

There is no way you can get 40% added to your pension.

With relief at source contributions the pension company adds 25%* to your net contribution
*which is 20% of the gross contribution.

Any higher rate tax relief due comes back to you, it is never added to the pension fund.

What do you expect your P45 to show your taxable pay as?

A combination of £80k salary, salary sacrifice and finishing part way through the year makes it difficult to know what your taxable earnings will actually be.

Wsb5tails

I think £54k  Thanks for replying,  I suspected that was the case but could find nowhere that spelled it out for me.

Marcon

so02see said:

I leave my £80k a year job at the end of December having paid £1333 in to my Pension per month via salary sacrifice.  The plan is to start taking my DB Pension of £14k a year from April.

I have unused Pension Annual Allowance over the last 3 years (double checked on Gov calculator) of £34k.  That's over the current year plus the previous 2

I've been a 40% taxpayer for many years.

So my question is about putting £20k of my current savings into my DC Pension to get the 20% (hopefully 40% tax) added to my funds.  My employer contributed  £666.  Do I have to have paid 40% tax on at least £40k to get that credi. Is it reasonble to think I can get that extra 20% credited to my DC Pension in this tax year and if I can't, does that impact next year's opportunity to add £2880.

I don't intend to touch my DC Pension for at least 5 years since it currently is worth £10k less that I have deposited.

Any contribution made to your DC pension in the current tax year won't impact on your ability to make a (net) contribution of £2,880 in the next - and indeed subsequent - tax years.

Dazed_and_C0nfused

So unless you are Scottish resident for tax purposes or will have other taxable income in the current tax year not previously mentioned you will only be paying higher rate tax on around £3.7k of your income.

So you may be able to add £20k to your pension but the amount of higher rate relief due will be limited.

Qyburn

so02see said:

So my question is about putting £20k of my current savings into my DC Pension to get the 20% (hopefully 40% tax) added to my funds.  

If you pay in £20K then the pension will receive £5K tax relief from HMRC. If you have paid 40% tax on at least £25K, then you'll be able to claim anothe £5K back from HMRC via tax return after the end of the tax year. Taken all in, you've added £25K to you pension for a net cost you of £15K.
But remember if you're retiring at the end of this month, you have only worked 9 months, so your salary this tax year is £60K, not 80. So you need to check your contribution limits against that figure.

Somebody

You need to check the gross contributions paid into your pension this tax year, then work out how much to carry forward from previous years, taking account of the £40k allowance for each tax year.

You mention £1,333 monthly is taken off as salary sacrifice but this is not the amount paid in to your pension; the amount subjected to the annual allowance is based on what your employer pays in.  You have exchanged some of your salary for the employers pension contributions. 

What's also confusing is that you mention "My employer contributed £666."  I assume the gross contributions paid in is £2,000 per month by your employer?  So 9 months to the end of Dec for this tax year = £18k, leaving you with an annual allowance headroom of £22k? 

You need to do the same calculation for the previous tax years in order to carry forward the unused annual allowances.

Wsb5tails

Qyburn said:

so02see said:

So my question is about putting £20k of my current savings into my DC Pension to get the 20% (hopefully 40% tax) added to my funds.  

If you pay in £20K then the pension will receive £5K tax relief from HMRC. If you have paid 40% tax on at least £25K, then you'll be able to claim anothe £5K back from HMRC via tax return after the end of the tax year. Taken all in, you've added £25K to you pension for a net cost you of £15K.
But remember if you're retiring at the end of this month, you have only worked 9 months, so your salary this tax year is £60K, not 80. So you need to check your contribution limits against that figure.

If I pay in £20k from personal funds, they will only add £4k not £5k wont they?
This current tax year I will end employment with only £54k taxable income for the current tax year so not able to claim another £5k back.


Do I have any admin to do to ensure the 3 years Annual Allowance is processed correctly?
And re the 3 years, is that the previous 3 tax years competed or the current plus the previous 2 for calculating what I can add in

Current taxable pay total for 2022 -23 will be £54k.  Pension from Salary sacrifice plus employer contributions total will be £27k
2021 - 2022 

Wsb5tails

Somebody said:

You need to check the gross contributions paid into your pension this tax year, then work out how much to carry forward from previous years, taking account of the £40k allowance for each tax year.

You mention £1,333 monthly is taken off as salary sacrifice but this is not the amount paid in to your pension; the amount subjected to the annual allowance is based on what your employer pays in.  You have exchanged some of your salary for the employers pension contributions. 

What's also confusing is that you mention "My employer contributed £666."  I assume the gross contributions paid in is £2,000 per month by your employer?  So 9 months to the end of Dec for this tax year = £18k, leaving you with an annual allowance headroom of £22k? 

You need to do the same calculation for the previous tax years in order to carry forward the unused annual allowances.

Yes, £2k gross per month has been going in plus 100% of my Annual Bonus this year.

This is how I arrived at the £34k total unused annual allowances over the last 2020- 21, 2021 - 22 and 2022 to 23 tax periods.
Knowing now that I definitely cant get 40% tax credited back to my Pension means I may use more of my savings funds to get closer to the £34k top up

Albermarle

If I pay in £20k from personal funds, they will only add £4k not £5k wont they?
25 % is added.
This is because. you would have to earn £25K to have £20 K after basic rate tax .

Wsb5tails

Bonus, thanks