pension allowance

loukitten

Hello everyone,

I'd like to add a lump sum to my pension pot and I'm struggling to calculate my allowance.

It seemed very easy: it's 60K this year, 40K the previous years, and I can use up to 3 previous years' allowance if I hadn't yet.

After doing my calculations I also try the HMRC calculator and to my surprise it asks me for ALL the contributions from the start of my pensions (WHY??) and it ended up giving me a number much lower than the one I had calculated.

I then found the Hargreaver Landsdown calculator which luckily gave me a more similar number.

So one question would be: which calculator should I trust, but then I've read of another rule that was not in the HMRC documents explaining the pension allowance, so I don't understand if it's relevant, it says:

"you must earn at least the amount you wish to contribute in the tax year you are making the contribution for"

Is this correct?

In this case all the calculations were useless.

Are we saying that if HMRC calculator gave me 80K allowance, the HL gave me 100K, but my salary is 60K, I cannot contribute in a year (with tax-relief) more than 60K?

Thanks and sorry for the long message.

lou

Marcon

loukitten said:

Hello everyone,

I'd like to add a lump sum to my pension pot and I'm struggling to calculate my allowance.

It seemed very easy: it's 60K this year, 40K the previous years, and I can use up to 3 previous years' allowance if I hadn't yet.

After doing my calculations I also try the HMRC calculator and to my surprise it asks me for ALL the contributions from the start of my pensions (WHY??) and it ended up giving me a number much lower than the one I had calculated.

I then found the Hargreaver Landsdown calculator which luckily gave me a more similar number.

So one question would be: which calculator should I trust, but then I've read of another rule that was not in the HMRC documents explaining the pension allowance, so I don't understand if it's relevant, it says:

"you must earn at least the amount you wish to contribute in the tax year you are making the contribution for"

Is this correct?

In this case all the calculations were useless.

Are we saying that if HMRC calculator gave me 80K allowance, the HL gave me 100K, but my salary is 60K, I cannot contribute in a year (with tax-relief) more than 60K?

Thanks and sorry for the long message.

lou

Correct. It's a point which catches out many people. Your total contributions (including any tax relief) can't exceed your earnings in the tax year, so if you want to use carry forward to pay in more than £60K (gross), you need to be earning enough to cover the total contributions.

loukitten

Thank you for confirming, Marcon!
I don't know why they make it so difficult in the HMRC documentation

dunstonh

I don't know why they make it so difficult in the HMRC documentation 

Historically, it never really used to be much of an issue.  It's a more recent confusion. Often caused by other websites dumbing it down and muddying the waters by treating tax relief as if it is something that gets added on.   Your pension contribution is the gross figure.   It is not the amount you pay via your bank.

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

The first line is pretty much self explanatory 
"You can get tax relief on private pension contributions worth up to 100% of your annual earnings."

Marcon

dunstonh said:

I don't know why they make it so difficult in the HMRC documentation 

Historically, it never really used to be much of an issue.  It's a more recent confusion. Often caused by other websites dumbing it down and muddying the waters by treating tax relief as if it is something that gets added on.   Your pension contribution is the gross figure.   It is not the amount you pay via your bank.

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

The first line is pretty much self explanatory 
"You can get tax relief on private pension contributions worth up to 100% of your annual earnings."

It would be even clearer for the many people unfamiliar with this whole business if the first line explicitly said '....100% of your gross annual earnings.'

loukitten

to add to the confusion, the person who told me about the pension allowance was a financial advisor, and he never mentioned the salary/earning rule.
He just told me about the 60K and the 40K for 3 years before, then he was supposed to get back to me but he understood I was not going to move my pension to one managed by him and he disappeared

Albermarle

loukitten said:

to add to the confusion, the person who told me about the pension allowance was a financial advisor, and he never mentioned the salary/earning rule.
He just told me about the 60K and the 40K for 3 years before, then he was supposed to get back to me but he understood I was not going to move my pension to one managed by him and he disappeared

As said there is a lot of misunderstanding and misrepresentation of this carry forward rule.
This forum is good for clearing these sorts of points up.