Alpha Pension and SIPP Contributions Query

drob4

Can anyone help me get me get my head around this?:

I have a Civil Service Alpha pension and buy additional pension each month. I therefore reduce my monthly income tax.

If I want to contribute to a separate SIPP, do I need to take the tax relief from my Alpha pension payments into account when working out how much I can pay into my SIPP (i.e. along with my actual contributions and employer's contributions to my Apha pension), in order to I ensure I don't pay more than I earn into a combination of both pensions?

Dazed_and_C0nfused

No, you don't get any (pension) tax relief on Alpha contributions.

They simply reduce your taxable pay.

It's not the contribution which counts for annual allowance purposes, you need to calculate your pension input amount.

Bravepants

Alpha pension input amount is 16 times the increase in pension each year. The increases come from normal accrual from your employer and your contributions, increases due to inflation (CPI) uplift and the Added Pension that you purchase in the year. Add these individual components up and multiply by 16. Subtract this from your annual allowance.

What is left of your annual allowance (be it gross salary, or £40k limit, whichever is higher) is what you can contribute to your SIPP. The SIPP contribution amount counts directly to your annual allowance, because its a Defined Contribution pension.

If you earn more than the £40k limit you may be able to carry forward allowance from previous years.

It can be a bit confusing at first...e.g. buying £900 of AP as a one-off lump sum might cost you £11,000 (depending on your age). It's not the £11,0000 that counts towards your allowance, but 16 x £900 = £14,400.

drob4

Thanks for replying. I think my initial assumption was wrong.

Example monthly figures for my Alpha Pension:
Gross Pay: £1850
Employer Contribs: £400
My Contribs (inc added pension): £585

I’ve just been multiplying each figure by 12 and deducting the total contributions from the total gross pay. I’ve then assumed this figure was the amount I could contribute to a SIPP each year.

Is this completely wrong?

hara____

Yes, it sounds like you're mixing up the two tests you need to apply.

The explanations here are useful

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/interaction-of-tax-relief-and-annual-allowance

For test 1, only your own contributions to Alpha matter, not the employer part. 

For test 2, be particularly careful this year. With inflation at 10% anyone with a decent amount of existing Alpha benefits could be surprised how large their input amount is for 2022-23

drob4

Thanks for the link.

Yeah, this might be more tricky than I thought.

If I have a gross income of £22000, I need to ensure the DB input amount + my SIPP contributions = no more than £22000. Does that sound right?

NoMore

drob4 said:

Thanks for the link.

Yeah, this might be more tricky than I thought.

If I have a gross income of £22000, I need to ensure the DB input amount + my SIPP contributions = no more than £22000. Does that sound right?

No, you need to ensure that DB input amount + your SIPP contributions is not more than 40k (the AA limit) AND that your Gross personal contributions to the SIPP don't exceed your earned income (the Tax relief limit).

The AA but can be extended by using up to 3 years previous unused AA.

Its two separate and distinct limits, with different rules and aims that you have to satisfy at the same time. 

hara____

No, the input amount is for the annual allowance test.

Using the same language as the mandg link:

Test 1, tax relief: this one's quite intuitive. To benefit from tax relief, your contributions to Alpha (employee cont. only) plus your gross SIPP contributions, need to be less than your 22k gross income. Think of your contributions to both as reducing your taxable income and not being able to reduce it below zero

Test 2, annual allowance: Alpha input amount plus gross SIPP contributions need to be less than 40k. Or if you have spare allowance from the last 3 years you can carry it over to increase this year's allowance. If you haven't already done so, ask the CS pension scheme to send you your pension input amounts for the last 3 years 

Pat38493

To be clear, I think what they are saying is that the "input amount" of your NHS pension is not the same as the amount you actually pay into it - it also includes some calculation of how much the NHS has to put in themselves to guarantee your benefits - I am not actually sure how you get that information but maybe it's on the NHS pensions portal.

drob4

hara____ said:

No, the input amount is for the annual allowance test.

Using the same language as the mandg link:

Test 1, tax relief: this one's quite intuitive. To benefit from tax relief, your contributions to Alpha (employee cont. only) plus your gross SIPP contributions, need to be less than your 22k gross income. Think of your contributions to both as reducing your taxable income and not being able to reduce it below zero

Test 2, annual allowance: Alpha input amount plus gross SIPP contributions need to be less than 40k. Or if you have spare allowance from the last 3 years you can carry it over to increase this year's allowance. If you haven't already done so, ask the CS pension scheme to send you your pension input amounts for the last 3 years 

Thanks both for taking the time to clarify.

I’m dealing with fairly small amounts here, so should be OK. Current Alpha value is only around £6700 per year. I’m looking at monthly gross SIPP contributions of £600 to add to my £585 Alpha payments.

Dazed_and_C0nfused

drob4 said:

hara____ said:

No, the input amount is for the annual allowance test.

Using the same language as the mandg link:

Test 1, tax relief: this one's quite intuitive. To benefit from tax relief, your contributions to Alpha (employee cont. only) plus your gross SIPP contributions, need to be less than your 22k gross income. Think of your contributions to both as reducing your taxable income and not being able to reduce it below zero

Test 2, annual allowance: Alpha input amount plus gross SIPP contributions need to be less than 40k. Or if you have spare allowance from the last 3 years you can carry it over to increase this year's allowance. If you haven't already done so, ask the CS pension scheme to send you your pension input amounts for the last 3 years 

Thanks both for taking the time to clarify.

I’m dealing with fairly small amounts here, so should be OK. Current Alpha value is only around £6700 per year. I’m looking at monthly gross SIPP contributions of £600 to add to my £585 Alpha payments.

You may well be ok but think you might be surprised at what the pension input amount could be.

There's a reasonable explanation here.  The thing to remember is it doesn't matter if you are paying £585 or £5,850/month

https://techzone.abrdn.com/public/pensions/guide-pension-annual-allowance#anchor_2