USS email says Ive gone over my Annual Allowance

dllive

Hi
Ive just received an email from USS saying that Ive gone over my Annual Allowance. Ive downloaded my latest annual statement. It shows that Ive exceed my AA by £4k. It reads "As you’ve exceeded the AA limit with USS, you may want to consider using your carry forward allowance from previous tax years to mitigate any tax liability."

How do I do this? Would it use my carry forward allowance by default? (Ive never made AVCs before the last tax year, so I should have plenty of 'carry forward')

Thanks

Doctor_Who

This Gov.uk link might help. Remember that if you have pensions outside of USS (e.g. a SIPP) and have contributed to them in the same tax year then you will have exceeded your AA by more than £4K.

https://www.gov.uk/guidance/check-if-you-have-unused-annual-allowances-on-your-pension-savings#full-publication-update-history

Simes122

If you have carry forward available, you can safely ignore this.  You need to keep track of your consumption of carry forward yourself and calculators are available on the HMRC website, but if you haven't used all that up, nothing you need to do.  If you have used up more than your Annual Allowance and Carry Forward, there is a tax charge and you need to factor that in your Tax Self Assessment form.  

dllive

Thanks for confirming this. Im only just starting to learn - much to my shame - about my USS and SIPP. Before 22/23 I hadnt made any AVCs to my USS, or any contributions to my SIPP for many years.

My situation is:

My employed income: £40k. I pay £3k per month AVCs into USS. In addition to this I also pay the usual 9.8% and my employer pays the 21.6%.

My self-employed income: £60k.

Given the above, how much should I pay into my SIPP to ensure I dont pay any HR tax on any employed/self-employed income? 

Can you explain in layman terms please, step-by-step?

Simes122

The Annual Allowance ceiling on your contributions is £60k or earned income whichever is the lower (without carry forward).   Your earned income is £100k combined so your max contributions are £60k per year or £100k per year with carry forward available.

Your USS is taken via Salary Sacrifice I presume, so you don't pay any tax or NI on contributions on that side.  So there is a slight advantage in making your contributions from USS to the maximum possible, as that will mitigate any NI contributions.   Your Uni/law doesn't allow you to be paid lower than minimum (or in some cases Living) wage.  So there is a limit to how much on the USS side you can contribute, but that's the side I'd start.   You need to work out 9.8% + AVC% to reduce salary down to around min wage.  How much of your annual allowance that consumes is difficult to calculate because of the hybrid nature of the scheme.   The DC side it's the same as the amount contributed to your IB pot.  On the DB side, it's much more complicated.

Nonetheless, you are probably safely within any AA concerns to meet your objective.   Looking at your SIPP side, to mitigate HR tax, you want your combined gross income to be £50k or less.   Having reduced your USS gross income to around 12-13k (depends on your contract hours and hourly rate), you have a combined gross income of £12-13k + 60k.   So £73k ish.   You need to lose 23k of that (gross) to avoid HR tax by bringing gross combined income to £50k or less (assuming you aren't in Scotland?) into your SIPP.   If you put in £19k to your SIPP, your SIPP provider will gross that up to £23.75k via tax relief automatically.    You'd then use your SA return to claim the additional 20% relief (it doesn't work quite like that, but that's getting outwith my knowledge and someone smarter than me will chip in on how that bit exactly works).   

But overall with those figures or thereabouts, you'll have earned just under £50k gross combined, and avoided the maximum amount of NI and HR tax possible.   You'll have consumed much of your annual allowance at this point, so you need to be careful, but you've got loads of carry forward available, so you should be able to do this safely.

I'm not an expert in Tax or anything - just another Uni employee, so you'll need to verify your figures against your precise circumstances, but that should give you the right general approach at least.   

Simes122

If you are paying in £3k a month AVCs, and 9.8% standard, you are taking yourself well under the minimum wage on the Uni side.  This isn't allowable - you might have escaped your Payroll's attention for now, but the Uni could be breaking the law if you are not reaching minimum wage per hour.    You'll have exceeded the annual allowance because you are contributing £36k in AVCs, and your DB side will probably be calculated to be worth much more than the £4k it's cost you.  (it's a complicated calculation).   It'll also be for when the AA was £40k - it's risen to £60k now, but you'll need to carefully assess how much Carry Forward you have consumed when you get your pension statement from USS.

Doctor_Who

The link below might help understanding of the annual allowance and the calculations used for DC and DB schemes. From memory (it's been a few years) I think the USS annual statement gives AA figures, but my statements always arrived well in to the following tax year, hence they weren't a lot of use when planning pension contributions.

https://techzone.abrdn.com/public/pensions/guide-pension-annual-allowance#anchor_3

r6mile

Simes122 said:

If you are paying in £3k a month AVCs, and 9.8% standard, you are taking yourself well under the minimum wage on the Uni side.  This isn't allowable - you might have escaped your Payroll's attention for now, but the Uni could be breaking the law if you are not reaching minimum wage per hour.    You'll have exceeded the annual allowance because you are contributing £36k in AVCs, and your DB side will probably be calculated to be worth much more than the £4k it's cost you.  (it's a complicated calculation).   It'll also be for when the AA was £40k - it's risen to £60k now, but you'll need to carefully assess how much Carry Forward you have consumed when you get your pension statement from USS.

Are you sure the scheme operates via salary sacrifice? If via net pay then you are allowed to pay in up to 100% of your income I thought.

Doctor_Who

r6mile said:

Simes122 said:

If you are paying in £3k a month AVCs, and 9.8% standard, you are taking yourself well under the minimum wage on the Uni side.  This isn't allowable - you might have escaped your Payroll's attention for now, but the Uni could be breaking the law if you are not reaching minimum wage per hour.    You'll have exceeded the annual allowance because you are contributing £36k in AVCs, and your DB side will probably be calculated to be worth much more than the £4k it's cost you.  (it's a complicated calculation).   It'll also be for when the AA was £40k - it's risen to £60k now, but you'll need to carefully assess how much Carry Forward you have consumed when you get your pension statement from USS.

Are you sure the scheme operates via salary sacrifice? If via net pay then you are allowed to pay in up to 100% of your income I thought.

I think it depends on the institution (mine introduced salary sacrifice some years ago) and isn't the default position for USS as a whole. 

Simes122

r6mile said:

Simes122 said:

If you are paying in £3k a month AVCs, and 9.8% standard, you are taking yourself well under the minimum wage on the Uni side.  This isn't allowable - you might have escaped your Payroll's attention for now, but the Uni could be breaking the law if you are not reaching minimum wage per hour.    You'll have exceeded the annual allowance because you are contributing £36k in AVCs, and your DB side will probably be calculated to be worth much more than the £4k it's cost you.  (it's a complicated calculation).   It'll also be for when the AA was £40k - it's risen to £60k now, but you'll need to carefully assess how much Carry Forward you have consumed when you get your pension statement from USS.

Are you sure the scheme operates via salary sacrifice? If via net pay then you are allowed to pay in up to 100% of your income I thought.

I’ve worked at two institutions and both are via Sal sac but not all institutions do it that way.

dllive

Thanks so much guys. Very detailed. It will take me a couple of days to read and digest this. I also need to speak to pension dept and see if its salary sacrifice. I thought I remember reading on USS that you can pay either your full salary, or the £40k AA, whichever is the lesser, but perhaps my employer has different terms.