USS email says Ive gone over my Annual Allowance

dllive

Hi guys. I can find no mention of 'Salary Sacrifice' on my employers pension web pages, but they mention 'Salary Exchange' on pension contributions. Is that the same thing? 

Simes122

dllive said:

Hi guys. I can find no mention of 'Salary Sacrifice' on my employers pension web pages, but they mention 'Salary Exchange' on pension contributions. Is that the same thing? 

Probably but best check with your pensions administrator.  There will almost certainly be something about it on the Uni staff pages on your website too.  Look at your payslip too - you should be able to see from there.

dllive

Simes122 said:

dllive said:

Hi guys. I can find no mention of 'Salary Sacrifice' on my employers pension web pages, but they mention 'Salary Exchange' on pension contributions. Is that the same thing? 

Probably but best check with your pensions administrator.  There will almost certainly be something about it on the Uni staff pages on your website too.  Look at your payslip too - you should be able to see from there.

Thanks. I checked my latest payslip and its itemised:

USS 2016 Unmatched DC 3,000.00

USS SX Pension 2016 372.28

I presume 'SX' stands for Salary Exchange. Not sure why it says 2016(!)

Grumpy_chap

dllive said:

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. 

dllive said:

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.

Simes122 said:

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.

I suspect the e-mail refers to 2022-23 tax year, not the current tax year (2023-24).
This matters as the Annual Allowance stated of £60k applies for this tax year.  Last tax year, it was £40k.

Annual Allowance is a double-faceted cap:
 - The annual allowance (£40k last year, £60k this year)
 - OR earned income (but employer contributions can exceed earned income while employee / individual contributions cannot).

Depending how the OP generates and receives the self-employed income, this may or may not qualify as earned income against which pension contributions can be made.  If that "self-employed" income is from non-trading activity or via a Ltd Co (rather than sole-trader), the earnings may not all qualify for pension contribution limits.

The good news is, the OP states they have not made additional pension contributions in the past so is likely to have sufficient carry-forward to mitigate the £4k of excess contributions (so long as earned income covered that level).

I hope that makes sense - I thought it was important to clarify the change in AA and also the limit with respect to earned income.

dllive

Simes122 said:

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.   

Hi @Simes122

Ive been reading and re-reading your post. Very helpful and I am beginning to understand.

Ive worked out 9.8% of my salary, plus the AVCs Im making. These are taking me well under minimum wage by 50% ! Ive calculated that, to bring myself back up to minimum wage I need to reduce my AVCs to £1.8k per month. (I think!! Does that sound about right?)

I know you probably cant answer this, but what could my employer do if they found out Im being paid less than minimum wage? I will obviously reduce my AVCs, but perhaps I should contact the Pension dept too.

2 questions with your post above (see the bits in bold):

"....you want your combined gross income to be £50k or less.": Shouldnt it be £62,570 taking into account the personal allowance?

"...Having reduced your USS gross income to around 12-13k (depends on your contract hours and hourly rate)": How did you get the 12-13k figure?

Thanks!

Dazed_and_C0nfused

"....you want your combined gross income to be £50k or less.": Shouldnt it be £62,570 taking into account the personal allowance?

It may be aimed at a different point but taxable earnings of £62,570 would usually mean £37,700 was taxed at 20% and £12,300 at 40%.

Taxable earnings of £50k means no 40% tax is paid.

Simes122

dllive said:

Simes122 said:

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.   

Hi @Simes122

Ive been reading and re-reading your post. Very helpful and I am beginning to understand.

Ive worked out 9.8% of my salary, plus the AVCs Im making. These are taking me well under minimum wage by 50% ! Ive calculated that, to bring myself back up to minimum wage I need to reduce my AVCs to £1.8k per month. (I think!! Does that sound about right?)

I know you probably cant answer this, but what could my employer do if they found out Im being paid less than minimum wage? I will obviously reduce my AVCs, but perhaps I should contact the Pension dept too.

2 questions with your post above (see the bits in bold):

"....you want your combined gross income to be £50k or less.": Shouldnt it be £62,570 taking into account the personal allowance?

"...Having reduced your USS gross income to around 12-13k (depends on your contract hours and hourly rate)": How did you get the 12-13k figure?

Thanks!

Looking at your other post, I’d hazard a guess that only your 9.8% contribution is via Sal sac.  How have you got your savings set up on uss?  Have you chosen Sal sac for your avcs?

50k or less is not subject to 40% tax as that’s covered by your pers allowance and the 20% band.

the last figure 12-13k is to ensure minimum wage and to minimise NI.

dllive

Thanks for clarifying @Simes122 . 
I suspect my employer only pays SS on the 9.8% contribution rather than AVCs. I will check.

dllive

Grumpy_chap said:

.....

Depending how the OP generates and receives the self-employed income, this may or may not qualify as earned income against which pension contributions can be made.  If that "self-employed" income is from non-trading activity or via a Ltd Co (rather than sole-trader), the earnings may not all qualify for pension contribution limits.
....

Just to clarify: My income is from employment, and self-employment as a sole trader. I also earn a little from a property rental. Is the rent counted as 'earned income' which counts towards pension contribution limits? I presume so because I pay tax on it(?). 

dllive

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.

I was watching the 'Focus on Pensions Tax' video yesterday (near the bottom of this page https://www.uss.co.uk/for-members/guidance-and-financial-advice/guidance-webinars ) . She says you can contribute up to 100% of your salary into USS at the 4:15 mark. So Im taking this (maybe wrongly?) that I can be paid less than minimum wage?

On my annual statement Ive found the PIA amounts. This has been about £10k in each of the past 3 years.

So, as I understand it, to calculate how much Ive exceeded my AA, I add my PIA + AVCs + contributions (gross) to my SIPP. Is that right?

Thanks