Pension carry forward amount confusion

waveyjane

I want to pay a lump sum into my SIPP. I also have an employers pension (as salary sacrifice).

The sum is greater than my (likely) income for 23/24 though.

If I enter the relevant total contribution figures in this carry forward calculator, it says this year I can contribute a bit more than the value of the lump sum I had in mind. But it also says "Personal and employee contributions made in a tax year cannot exceed your earnings in that tax year."

Does that mean I can only contribute a maximum of the value of my earnings this year, regardless of the carry over figure given? 

(If so, you'd think they'd ask for my earnings figure for each year in order to clarify that.)

MallyGirl

you can only contribute in this FY up to your earnings in this FY. You cannot bring forward the fact that you did not contribute up to earnings in previous years.

waveyjane

Thanks - so in the current year I can contribute the total of my unused allowances from the last three years, but only if that total comes less than my earnings in the current year? Wonder why the calculator doesn't want me to add my current year's earnings then? Weird, but no matter.

BTW if I wanted to contribute more than my total earnings in the current year, I assume I just don't get the tax rebate on that, is that right? Or is there some terrible penalty if I go over?

 

waveyjane

Oh and also a related question: when the calculator says "include the gross value of personal and employer contributions" does "gross" mean the money I paid in including the tax rebate? So if I paid in £100, and as a higher rate tax payer, HMRC paid me 20% plus 25% on top of that to make it £145 inside the pension - is that £145 the "gross value"? 

Doctor_Who

waveyjane said:

Oh and also a related question: when the calculator says "include the gross value of personal and employer contributions" does "gross" mean the money I paid in including the tax rebate? So if I paid in £100, and as a higher rate tax payer, HMRC paid me 20% plus 25% on top of that to make it £145 inside the pension - is that £145 the "gross value"? 

Yes, gross means your contribution plus the 20% tax relief. You pay in £80 and the tax relief adds £20 (it's 20% of the total amount). Any higher rate tax relief is normally claimed through self assessment and is paid back to you and does not go into the pension (unless you then add it).

waveyjane

@Doctor_Who OK so in that case it makes the calculation of the available carry forward more complicated. Am I right in thinking that if I look at the amounts shown in my company pension fund statement (a Scottish Widows jobbie) then those are the gross figures because I am paying that via salary sacrifice?

Any amounts I have contributed to my SIPP I can calculate from the figures that came out of my bank account.

Doctor_Who

waveyjane said:

Am I right in thinking that if I look at the amounts shown in my company pension fund statement (a Scottish Widows jobbie) then those are the gross figures because I am paying that via salary sacrifice?

That is my understanding assuming a DC scheme. They will be the gross amount of your salary sacrifice and your employer's contribution.

Any amounts I have contributed to my SIPP I can calculate from the figures that came out of my bank account.

Or just look at your SIPP account, it will show your net contribution and then 6-8 weeks later the relevant tax relief. Just add the two figures together to get the gross amount.

Dazed_and_C0nfused

waveyjane said:

@Doctor_Who OK so in that case it makes the calculation of the available carry forward more complicated. Am I right in thinking that if I look at the amounts shown in my company pension fund statement (a Scottish Widows jobbie) then those are the gross figures because I am paying that via salary sacrifice?

Any amounts I have contributed to my SIPP I can calculate from the figures that came out of my bank account.

Salary sacrifice means you aren't making this contributions, that's why no tax relief is added by the pension company.  They are employer contributions.

Your bank account would only show the net value of any personal contributions.

fuzzything

If you pay more than 100% of earnings to your pension you just not entitled to tax relief on the amount over that.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

Section 189(2)-(7) Finance Act 2004

For most people the amount of tax relief they can have on their pension contributions is limited to 100% of their relevant UK earnings that are chargeable to income tax for the tax year

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

It’s up to you to make sure you’re not getting tax relief on pension contributions worth more than 100% of your annual earnings. HM Revenue and Customs (HMRC) can ask you to pay back anything over this limit.

Secret2ndAccount

Dazed and Confused has given you the key answer. Whilst the other replies might be factually correct, they are not drawing attention to the main thing you need to know.
If you contribute by sal sac, you take a reduced salary and your employer pays into your pension. Therefore, all these amounts are employer contributions, not personal contributions. If your salary, after reductions for sacrificing, is n,000 then you can pay in 0.8 x n,000 as a personal contribution. You get the other 0.2 back as a tax rebate for a total of n,000. That's the most you can get tax relief on, and it's usually not worth contributing any more (though it possibly could be if you make the contribution by increasing your sal sac).
The annual allowance is a limit on the total of all contributions in a year: you + your employer + the taxman + santa claus     That's the one that can use carry forward if you want to exceed for a year or two (or three)

If you still find that you can't pay in as much as you want to, maybe put the money in a savings account or ISA for a year, and pay in your whole salary again next year. If you are confident of keeping your job, you can pay it in on April 6th as long as you eventually earn enough to cover it. Consider increasing your salary sacrifice since that's the most efficient way to contribute to a pension until you get your salary down below 12,570 (your income tax threshold) or minimum wage, which is the limit for sal sac.

Grumpy_chap

Remember, as well, sal sac contributions (which become employer contributions) are not capped at earnings.
If you SS down to NMW, you can also contribute the amount you received from NMW earnings.  After the money has been paid as salary.