Can I pay more into my workplace pension?

Dazed_and_C0nfused

Suzey said:

Dazed_and_C0nfused said:

Suzey said:

Dazed_and_C0nfused said:

Roughly how much have you earned in taxable income in 2022:23?

I'm kind of scared to say.  A lot.  I was well into higher rate tax and nearly into top rate.

In that case personal contributions would save you some tax as well as getting the basic rate tax relief.

They have two main benefits in your situation (on top of the basic rate tax relief).

1.  They reduce your adjusted net income.  This can help you keep your Personal Allowance which would otherwise be lost (ANI above £100k means you gradually lose your Personal Allowance).

2.  The gross contribution increases your basic rate tax band, meaning more income is taxed at 20% and less at 40%.

In short they are incredibly tax efficient.

But you only have a few days to make a contribution for the current tax year.  You do not have to choose how to invest the money now, making the contributions is key.

And you cannot carry back pension contributions from one tax year to another so if you don't contribute in the current tax year there is no way of rectifying that.

Thanks for this!

Bear with me here... I know I've messed up by not paying out of my gross, and now I need to pay out of my net.

The part I am trying to get my head around is: in the two points you mentioned above, how does that benefit me in a practical way?  Do you mean that HMRC will look at my taxes for this year and possibly adjust how much I should have paid?

No, you will be required to complete a Self Assessment return for 2022:23 as your taxable income was over £100k.

The reason I asked was because if you had been you could have amended (without actually submitting it to HMRC!!) your 2021:22 return to a blank one.  Then added in all your 2022:23 earnings details, interest etc and checked your tax liability.  Then added some RAS pension contributions to see the exact impact on your tax position.

It's not perfect but would have given you a good idea of the potential benefits.

I presume you realise that you are currently in the mythical 60% tax rate territory (loss of Personal Allowance coupled with 40% tax rate 😳).

gelato_cat

Dazed_and_C0nfused said:

I presume you realise that you are currently in the mythical 60% tax rate territory (loss of Personal Allowance coupled with 40% tax rate 😳).

Yes, I was definitely paying more than 50%.

I just had a look at my payslips and it was actually not as close to the top rate as I thought this year.  I was made redundant partway through the tax year so my taxable pay to the date of the last payslip was about £103k.

Does the information still stand - I can still make a contribution from my savings and get some sort of tax efficiency?

Sorry to sound so clueless.

The good news is I have the money in my current account ready to go into my pension tomorrow.

Dazed_and_C0nfused

Suzey said:

Dazed_and_C0nfused said:

I presume you realise that you are currently in the mythical 60% tax rate territory (loss of Personal Allowance coupled with 40% tax rate 😳).

Yes, I was definitely paying more than 50%.

I just had a look at my payslips and it was actually not as close to the top rate as I thought.  It was between £110k and £120k.  Does the information still stand - I can still make a contribution from my savings and get some sort of tax efficiency?

Sorry to sound so clueless.

The good news is I have the money in my current account ready to go into my pension tomorrow.

You should be able to yes, assuming you haven't already contributed the annual allowance (plus any available carry forward).

Your income is slap bang in the 60% area.  As this is the first year you have earned over £100k you could be looking at a large tax bill (you probably got the full Personal Allowance in your tax code).

Pension contributions will definitely help mitigate this.

It's quite possible to pay a pension company say £8,000 and this becomes ap pension fund of £10,000.

And this then saves you £4,000 in personal income tax.  Meaning you end up with a £10,000 pension pot for a real cost of £4,000 😃

gelato_cat

Thanks - see above - the taxable for this year was £103k ish.  Sorry - I forgot that I hadn't worked the whole year because I lost my job in January.

gelato_cat

I believe I had zero Personal Allowance judging from my tax code, but I will see what HMRC says after April 5th!

gelato_cat

So it looks like I can make a contribution before 5th April into my Nest pension using a debit card.

I've paid about £7k into it through the payroll out of my gross pay.

It looks like it would be beneficial to me to basically top up this year's pension contributions to £40k, ie add another £33k?

Then Nest will add 20% to that as basic rate tax relief and then I need to claim the remaining tax relief from HMRC myself?  Is that right?

How do I add that extra bit of tax relief in?  Does HMRC send it straight to my pension?

If I get 40% back then does that mean I end up with £46200 as a result of my £33k contribution?  (33000 plus 40%?)

Dazed_and_C0nfused

Suzey said:

Thanks - see above - the taxable for this year was £103k ish.  Sorry - I forgot that I hadn't worked the whole year because I lost my job in January.

If that is your total taxable income then only a small element will be the effective 60% rate.

But pension contributions are still very tax efficient on that level of income as a lot of 40% tax will be charged.

xylophone

https://www.nestpensions.org.uk/schemeweb/helpcentre/contributions/calculating-contributions/calculate-tax-relief.html#:~:text=The tax relief method we,contributions are paid to us.

It appears that NEST uses "relief at source".

https://www.hl.co.uk/pensions/tax-relief/calculator

If you have already made a  net contribution of £7000, then NEST will have claimed basic rate tax relief of £1750.

This means that a gross contribution of £8,750 has already been made in this tax year. 

You will make your additional contribution on a net basis and NEST will claim the basic rate relief.

You will claim higher rate relief via self assessment.

https://forums.moneysavingexpert.com/discussion/comment/79942033/#Comment_79942033

gelato_cat

xylophone said:

https://www.nestpensions.org.uk/schemeweb/helpcentre/contributions/calculating-contributions/calculate-tax-relief.html#:~:text=The tax relief method we,contributions are paid to us.

It appears that NEST uses "relief at source".

https://www.hl.co.uk/pensions/tax-relief/calculator

If you have already made a  net contribution of £7000, then NEST will have claimed basic rate tax relief of £1750.

This means that a gross contribution of £8,750 has already been made in this tax year. 

You will make your additional contribution on a net basis and NEST will claim the basic rate relief.

You will claim higher rate relief via self assessment.

https://forums.moneysavingexpert.com/discussion/comment/79942033/#Comment_79942033

Thanks @xylophone, so just checking I have understood correctly, taking the above figures as an example, I can contribute 40000 - 8750 = £31250.  Then Nest will claim £7812.50 and add that to the pot.  Is that right?

xylophone

Contributions are made net  to a relief at source scheme and then the provider claims tax relief. at basic rate,

The annual allowance for 22/23 is £40,000. 

Let's take a self employed person who earns £40,000 and wants to use the full Annual Allowance in his personal pension. There is no employer contribution.

He makes a payment of £32,000 to the pension provider and the provider claims tax relief of £8000 and adds it to the pension.

That means that after the tax relief is claimed there is £40,000 in the pension pot so that the whole AA is used.

https://www.gov.uk/tax-on-your-private-pension/annual-allowance

Had you considered the employer contribution for the current year?

Calculator here

https://retirement.fidelity.co.uk/grow-and-manage-your-pension/pension-allowances-tax-benefits/annual-allowance/

That said, you might be able to use carry forward.

Read below carefully and contact NEST if you need to check your situation.

https://www.nestpensions.org.uk/schemeweb/memberhelpcentre/contributions/annual-allowance.html#:~:text=You may be able to,your defined contribution pension schemes.