NHS pension and Annual Allowance

hugheskevi

So.. if my taxable earnings for 23/24 are £45000

The £45,000 and £36,000 figures are accurate, but to check - in your opening post you said:

(I've estimated my final salary this year and rounded up the pennies).

Estimated Closing value  23/54 x £45000 = £19166.67 x 16 = £306,666.67

Your salary and your taxable income are two different things. From your salary you will pay employee contributions. These are likely to be 9.8%. These are deducted from your salary to produce your taxable earnings. You may have other income which attract tax relief from the list linked in the earlier post (remember any bonuses received, which are usually not pensionable but are taxable).

As far as tax relief goes I don't need to factor in my NHS pension at all?

You need to factor in the pension contributions you are making to the scheme when calculating your earnings eligible for tax relief, as discussed above.

Dazed_and_C0nfused said:

If you plan on making a £45,000 RAS contribution then I think you will need to understand the overall annual allowance position for the year as it's quite possible you will exceed £60k with a DB PIA to add as well.

You might not exceed £60k and even if you do you might have unused annual allowance available from the previous 3 years but at least you will know where you stand.

I think the RAS (gross) contribution will only be around £40,000 based on the figures provided. With a salary increase from £42,337 to £45,000 the salary change is 6.3%. Given that is below the inflation adjustment to opening value, the OP should have a negative Pension Input amount from their final salary pension to offset against their career average accrual which should be around £14,200 based on their salary (£45,000 x (1/54) x 6.7% x 16). So the total pension input should only be a little over £50,000 and likely lots of carry-forward from past years, so I doubt they are in any danger of an Annual Allowance breach this year.

On the other hand, even a fairly small variance in the figures provided could change this, so it wouldn't hurt to do the calculation, and would also be a good learning exercise.

Also, if that level of RAS contributions is sustained in future years, things could rapidly change in the future, especially if salary increases in real terms.

furpho

Thank you so much HughesKevi, I've just looked at last years payslip and my pensionable pay was £42337 but my taxable pay was £38665.  At this point I'd estimate my taxable pay for 23/24 to be £40000.  So I think I'm comfortable putting in £30k net.

There will be a smaller contribution next year but that's it.

furpho

Hi DazedandConfused...  I'm not sure what you mean here.  Am i missing something fundamental?  Unless you have a chunk of other income or are Scottish resident that contribution won't be saving you any income tax, you will simply be getting the £9,000 in pension tax relief the pension company adds.  

The £10K notification was from Tax on your private pension contributions: Tax relief - GOV.UK (www.gov.uk)

Claiming tax relief yourself

In some cases, you need to claim tax relief on pension contributions yourself. You’ll need to make a claim if:

• you pay Income Tax at a rate above 20% and your pension provider claims the first 20% for you (relief at source)
• your pension scheme is not set up for automatic tax relief
• someone else pays into your pension

If you’re paying in an amount greater than £10,000, you’ll need to contact HMRC to claim the tax relief.

Dazed_and_C0nfused

furpho said:

Hi DazedandConfused...  I'm not sure what you mean here.  Am i missing something fundamental?  Unless you have a chunk of other income or are Scottish resident that contribution won't be saving you any income tax, you will simply be getting the £9,000 in pension tax relief the pension company adds.  

The £10K notification was from Tax on your private pension contributions: Tax relief - GOV.UK (www.gov.uk)

Claiming tax relief yourself

In some cases, you need to claim tax relief on pension contributions yourself. You’ll need to make a claim if:

• you pay Income Tax at a rate above 20% and your pension provider claims the first 20% for you (relief at source)
• your pension scheme is not set up for automatic tax relief
• someone else pays into your pension

If you’re paying in an amount greater than £10,000, you’ll need to contact HMRC to claim the tax relief.

Given that you seem to be suggesting making a RAS contribution and have not posted anything to indicate you are paying intermediate or higher rate tax then this contributions won't be saving you any income tax and you won't need to contact HMRC.

The pension company will simply add the pension tax relief (which has no connection to the income tax you have paid) to your net contribution.  There is no £10,000 limit where they won't do that (assuming it's a qualifying contributions).  So if you paid £30k they will add 25% making a gross contribution of £37,500.

If you think there is some personal tax saving to be made could you expand on this point as we may be at cross purposes.

furpho

Hi Dazed..  it's probably simpler if I say what I'm trying to do.  I'm an nhs employee with nhs pension and a basic rate tax payer on around £45K.  I've come into an inheritance and i'm trying to move as much into my ISA and SIPP.  I've never had any spare cash before so this is all new to me so I could be confusing things as I did when conflating tax relief and Annual allowance.   

From my understanding so far a basic rate tax payer can open a Sipp and contribute up to their taxable salary and the gov will add 25%.  So for every £8 the gov adds £2.  It's this added 25% that I'm trying to capitalise on.   The Sipp contribution will be going into my 23/24 Sipp on Interactive Investor who i believe then claim the 25% which takes around 10 weeks to appear.   (although the over £10K comment on the hmrc site is a little confusing).

It doesn't look like annual allowance will be an issue for this year.

Is there a big gotcha here that I'm missing?

Dazed_and_C0nfused

furpho said:

Hi Dazed..  it's probably simpler if I say what I'm trying to do.  I'm an nhs employee with nhs pension and a basic rate tax payer on around £45K.  I've come into an inheritance and i'm trying to move as much into my ISA and SIPP.  I've never had any spare cash before so this is all new to me so I could be confusing things as I did when conflating tax relief and Annual allowance.   

From my understanding so far a basic rate tax payer can open a Sipp and contribute up to their taxable salary and the gov will add 25%.  So for every £8 the gov adds £2.  It's this added 25% that I'm trying to capitalise on.   The Sipp contribution will be going into my 23/24 Sipp on Interactive Investor who i believe then claim the 25% which takes around 10 weeks to appear.   (although the over £10K comment on the hmrc site is a little confusing).

It doesn't look like annual allowance will be an issue for this year.

Is there a big gotcha here that I'm missing?

A lot of the information you have linked to on gov.uk is aimed at people who can claim extra tax relief over and above the basic rate relief the pension provider will automatically add.

As there doesn't appear to be any personal income tax benefit in you making this contributions that isn't a concern for you, you are simply getting the basic rate pension relief i.e. you hand over £30k and have a pension fund of £37.5k.

This section covers the bit that is relevant to you (20% being the amount looking at it from the gross contribution perspective, 25% is when looking at the net contribution).  Nothing you have posted suggests there is any need for you to contact HMRC.

your pension provider claims tax relief from the government at the basic 20% rate and adds it to your pension pot (‘relief at source’)

Dazed_and_C0nfused

Also, this is wrong,

From my understanding so far a basic rate tax payer can open a Sipp and contribute up to their taxable salary and the gov will add 25%.


You would add the net amount.  For example if you were constrained by taxable pensionable earnings of £25k then you cannot contribute £25k and get 25% added.  You would pay £20k, the net contribution, and the basic rate relief of £5k makes a gross contribution of £25k

furpho

Thanks Dazed... i do get that bit I'd just worded it badly.. H&L have a handy little calculator 

AlanP_2

As a precaution against AA becoming an issue you could split your SIPP contributions either side of April so spreading across two AA entitlements.

BTW - I agree with the others that AA doesn't look an issue so that really is a belt and braces suggestion.

furpho

Thanks Alan...  I'm going to be using the 24/25 Sipp to get rid of the remainder of the inheritance which is why i wanted to maximise the 23/24.   I'm comfortable with the AA calcs.  In fact I'm comfortable with all of it now thanks to the forum