SIPP and NHS pension contributions

Bobinyorkshire

I have a SIPP I am planning to use to bridge the gap between my retirement and taking my NHS pension. I have added 80% of my gross taxable income (from P60), which excludes my employee NHS pension contributions but not the contributions of the employer. Is that correct? 

However, I’ve seen some details which indicate I should take into account the NHS pension increase which for 2021/2022 was 2.5% I think. This only adds up to £625 but takes it close to the amount indicated on the P60. 

Am I likely to go over the AA if this is the case and if so how do I pay it back

Thanks in advance 

hugheskevi

I have a SIPP I am planning to use to bridge the gap between my retirement and taking my NHS pension. I have added 80% of my gross taxable income (from P60), which excludes my employee NHS pension contributions but not the contributions of the employer. Is that correct? 

Presumably, this was your P60 for tax year 2021/22? If so, that has no relevance for the current tax year - 2022/23 - in which the SIPP contribution is being made.

To calculate the maximum contribution eligible for tax relief, it needs to be 80% of earnings which attract tax relief for 2022/23. Neither your own nor your employer's pension contributions would be included in this.

However, I’ve seen some details which indicate I should take into account the NHS pension increase which for 2021/2022 was 2.5% I think. This only adds up to £625 but takes it close to the amount indicated on the P60

Not relevant for calculating the maximum contribution eligible for tax relief, but would form part of the calculation of the increase to NHS pension if you calculate your expected pension input from NHS pension for 2022/23.

Am I likely to go over the AA if this is the case and if so how do I pay it back

So far you have only been talking about contributing the maximum amount eligible for tax relief. The Annual Allowance is completely different. 

The Annual Allowance permits you to accrue pension with a value of up to £40,000 of pension input per year (assuming not subject to tapered annual allowance or money purchase annual allowance). To calculate this you need to work out how much you expect your NHS pension to increase by over the year using the HMRC formula to calculate pension input for DB schemes (ie starting values, closing values and inflation adjustments), and the amount you have contributed to your SIPP (including tax relief). The combined total is the total pension input for the year. If this exceeds £40,000 you can carry-forward any unused annual allowance from the past 3 years.

Note, the NHS is consulting on proposed changes to the revaluation arrangements to NHS pensions which would affect the calculation of pension input.

Bobinyorkshire

Thank you. I misunderstood. I thought the maximum I could put into a SIPP was my 80% of my salary minus my NHS pension contributions. As my salary is <£30k then AA will not be a problem

Dazed_and_C0nfused

Bobinyorkshire said:

Thank you. I misunderstood. I thought the maximum I could put into a SIPP was my 80% of my salary minus my NHS pension contributions. As my salary is <£30k then AA will not be a problem

You might be surprised how big the PIA can be!

Bobinyorkshire

Will this number limit my SIPP contribution for this year? 

NedS

Bobinyorkshire said:

Will this number limit my SIPP contribution for this year? 

It does not limit you, but if you exceed the AA you will incur a tax charge so best to do the calculation first.

Bobinyorkshire

Thank you for your comments. I’m still not clear about a couple of details though. I have 2 protected periods of pay in the 1995 scheme in 2011 and 2017. Would these be considered the same as a deferred member and if so do they not form part of the pension input calculation? If they are not in the calculation, would the pension input calculation then only consist of the increase in my 2015 pension over the past year and how do you get this value? Only concerned as I was going to put some more money into my SIPP before the end of the tax year and am now concerned that this may not be a good idea.

Also, if I did exceed the AA for 2021/2022 would I be informed by HMRC / NHS pension or my SIPP provider? And if there is time limit on the use carry forward if you only discover this overshoot of AA in future years?

 

Dazed_and_C0nfused

Bobinyorkshire said:

Thank you for your comments. I’m still not clear about a couple of details though. I have 2 protected periods of pay in the 1995 scheme in 2011 and 2017. Would these be considered the same as a deferred member and if so do they not form part of the pension input calculation? If they are not in the calculation, would the pension input calculation then only consist of the increase in my 2015 pension over the past year and how do you get this value? Only concerned as I was going to put some more money into my SIPP before the end of the tax year and am now concerned that this may not be a good idea.

Also, if I did exceed the AA for 2021/2022 would I be informed by HMRC / NHS pension or my SIPP provider? And if there is time limit on the use carry forward if you only discover this overshoot of AA in future years?

 

A provider cannot know for certain if you have exceeded the AA.

How would your SIPP provider know what the NHS PIA was?

How would the NHS know what your SIPP contributions were?

I think the NHS should notify you if you exceeded it with them but that's all.

At the nex of the day it's your responsibility.

Bobinyorkshire

Ok, I’ll try to contact NHS pensions to get some clarity about whether my protected pensions years are included in PIA, however past experience with contacting NHS pension in the past means I’m unlikely to get this information any time soon (or at all). This is why this forum has proven to be so helpful in the past. 

Do you know if there is a time limit for the utilisation of carryover for passed years?

Pat38493

Bobinyorkshire said:

Ok, I’ll try to contact NHS pensions to get some clarity about whether my protected pensions years are included in PIA, however past experience with contacting NHS pension in the past means I’m unlikely to get this information any time soon (or at all). This is why this forum has proven to be so helpful in the past. 

Do you know if there is a time limit for the utilisation of carryover for passed years?

Look on the bright side - if you can't get the information HMRC probably can't get it either...

Bobinyorkshire

It’s certainly been a steep learning curve. It seemed so simple at the start. Think I’ll leave the SIPP alone for a while 😀