Over paid into pensions Confusion with annual allowance roll over

SunnyBunny

Haven't posted for some time but am an avid reader and by reading a random post on this forum I've suddenly realised that I have paid more into my pensions than I have earned.  I got confused with rolling over the annual allowance from previous years, so  it looks like I overpaid in FY 21/22 by approx £14K, and FY 22/23 by approx £15.5K.  I'm estimating I'll be approx £3K+ over this year.   

I've got DB and DC pensions via my employer and a SIPP.     
Should I contact the SIPP (Fidelity) provider and see what can be done about this year's contributions, will they be able to help with the previous years?   Or is it straight to HMRC, and prepare for a big tax bill.   Ahhhhh! 

NoMore

People often get confused about this, are you certain you fully understand the rules and have definitely broke the AA ? 

SunnyBunny

Well I think I understood the £40K allowance for total pension contributions per year, then this year when it increased to £60K.   The unused allowance from previous years can roll over (roll over probably not the correct term as I always think of the lottery and in this instance it is the exact opposite, ie meaning I have not won!.)    I missed the fact until as I said I read and re-read a post where someone commented that you cannot pay more into your pension that your annual earnings.   I can't believe how I have missed this.   Checked my spreadsheet and yes it looks like I've over done it.  

NoMore

Where a lot of the confusion lies is that there are two separate limits, that people often get confused with and try and conflate them.

There is the AA (currently 60k per year) - this is the max you can get put into pension(s) per year and includes from all sources, so personal, employer, third party, tax relief all count. DB pensions have a different method which is not simply the contributions but a calculation of the rise in benefits, known as the PIA. The AA can be extended by unused Allowance from the last 3 years.

The second limit on contributions is you can only claim tax relief on contributions by relief at source on up to your relevant earnings. This is not the same as the AA, employer contributions don't gain you tax relief for example.

They are separate and should not be considered together, you just have to satisfy both of them to have no problems.

So first consider the tax relief, did you make contributions (plus the basic tax relief claimed by the pension) by relief at source to your DC pension(s) such that you contributed more than your relevant earnings ? If not then you can proceed to checking against the AA. If you have you will have to contact the pension provider/HMRC to reverse the tax relief you weren't entitled to.

For AA do all your contributions come to more than 60k ? For DB pension, if its not deferred you will have to find the PIA. If they come to more than 60k do you have carry forward available form the previous 3 years to cover it ? If not then you will have a AA charge to pay.

Do not try and conflate the two limits, like you can only pay in the lower of your earnings or 60k, that's where people start to get confused, Treat them separately.

jamesd

Tell Fidelity the amount you paid beyond your pay in each of those tax years and ask them to refund you with a "repayment of excess contributions lump sum". You're within the time allowed and there will be no penalties.

You're allowed to estimate and correct and you're just using that mechanism to correct your mistake.

Nothing to tell HMRC, Fidelity will take care of it all. There is one exception, if you told HMRC to get higher rate tax relief you need to tell them the lower numbers so they can recalculate.

SunnyBunny

@jamesd Thank you - out of interest what is the time allowed period.    I'll recheck my figures and then contact Fidelity.   I'll reduce my contributions to the DC pension for the next couple of months as well. 

zagfles

SunnyBunny said:

Haven't posted for some time but am an avid reader and by reading a random post on this forum I've suddenly realised that I have paid more into my pensions than I have earned.  I got confused with rolling over the annual allowance from previous years, so  it looks like I overpaid in FY 21/22 by approx £14K, and FY 22/23 by approx £15.5K.  I'm estimating I'll be approx £3K+ over this year.   

I've got DB and DC pensions via my employer and a SIPP.     
Should I contact the SIPP (Fidelity) provider and see what can be done about this year's contributions, will they be able to help with the previous years?   Or is it straight to HMRC, and prepare for a big tax bill.   Ahhhhh! 

How are your DB and DC conts taken, presumably before tax, ie either sal sac or "net pay"? So your taxable pay is pay after your DB and DC pension conts have been deducted?

If so, was your gross SIPP contribution greater than your taxable (P60) earnings? That's all you need to worry about for the tax relief (earnings) limit. If that is the case you can get a refund as mentioned above. If it isn't, you haven't exceeded the tax relief limit.

Then consider the AA separately. Your earnings aren't relevant for this, unless they are massive (£200k+) and the AA taper applies. You can use carry forwards for the AA, eg a calculator like https://www.hl.co.uk/pensions/contributions/carry-forward-rule/annual-allowance-calculator  Use DB PIA, plus DC and SIPP gross conts.

A common mistake is adding your DB PIA, your gross DC and SIPP and saying oh dear that's more than my earnings. But if you're an avid reader here you'd know that as it's explained every week

jamesd

Limit is that "The payment must be made before the end of the period of six years beginning with the last day of the tax year in which the ‘excess contributions condition’ was met, that is the tax year in which the ‘excess’ contribution was paid"

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm045000#Refundecls

SunnyBunny

Thanks @jamesd very handy to know that if I find myself over the limit.

"A common mistake is adding your DB PIA, your gross DC and SIPP and saying oh dear that's more than my earnings. But if you're an avid reader here you'd know that as it's explained every week "

@zagfles Ha ha - avid reader and understander are perhaps 2 different things!   I've checked my p60 and in all 3 years my taxable pay from employment was higher than the amount I paid into a SIPP including the tax relief - I paid in £25000 in total each year and my taxable pay after salary sacrifice was more than that amount.  

I didn't know about checking the P60 amount and comparing the SIPP contributions so I have learned something new.

Thanks again.

Dazed_and_C0nfused

SunnyBunny said:

Thanks @jamesd very handy to know that if I find myself over the limit.

"A common mistake is adding your DB PIA, your gross DC and SIPP and saying oh dear that's more than my earnings. But if you're an avid reader here you'd know that as it's explained every week "

@zagfles Ha ha - avid reader and understander are perhaps 2 different things!   I've checked my p60 and in all 3 years my taxable pay from employment was higher than the amount I paid into a SIPP including the tax relief - I paid in £25000 in total each year and my taxable pay after salary sacrifice was more than that amount.  

I didn't know about checking the P60 amount and comparing the SIPP contributions so I have learned something new.

Thanks again.

If you have been liable to tax above the basic rate have you been claiming any additional relief due from HMRC?

NB.  If you complete a Self Assessment return there is nothing for you to claim as such, you simply include the RAS contributions on your tax return.

SunnyBunny

@Dazed_and_C0nfused I don't have to complete a self assessment return, I am an employee for an organisation and salary sacrifice brings all my salary to basic rate.  Thanks.