Question on carry forward with salary sacrifice pension

stormCat99

Marcon said:

boots_babe said:

My next question is, to use the carry forward, would he pay into his SIPP £17239 (then 20% tax would be added into SIPP automatically)? 

Or does he pay in that minus 20% so £13791 (such that when 20% tax is added into his SIPP, the total would be £17239)?

Very grateful for anyone who could sense check, many thanks.

He pays in net of tax to the SIPP, so that when the 25% top up is added by the provider, it brings him up to the required total - but as others have said, I think you have missed out the 'actual' employer contribution (as opposed to the salary sacrificed 'employer contribution'), which needs to be included for annual allowance purposes. Only then can you work out how much headroom he has for carry forward.

Thanks Marcon.  So to make sure I'm clear, if he had a round £10k of annual allowance leftover, he can only pay £8k into the pension, as the £10k includes the 20% that would be added within the SIPP? And I assume he can still claim back on top the extra 20% due to being a 40% taxpayer through the usual route.

Not sure what you mean re missing out the employer contributions though? Within his actual pension account we can see how much is paid in per month. The total is £2527 per month currently, which maps onto what we see on his payslip, which is broken down into £1895 employee contribution and £632 employer contribution. All the annual figures I posted above for each tax year, refer to the total that is paid into his workplace pension, which is inclusive of both the employer and employee contributions. Unless you mean he must also factor in the NI savings the employer will be making?

stormCat99

QrizB said:

The added tax relief for a personal SIPP contribution is 25%. Is it just a typo that you've typed 20% for 2021/22 above?

I know that it equates to 25% from the net payment yes, I was meaning that it's the equivalent of not having originally paid 20% tax. So to get £100 in the pension, you pay in £80, as you've been taxed the 20%. But I realise that you then have 25% added to that £80 in order to get back to £100. 

stormCat99

Somebody said:

As  understand it, it's not the employee's salary sacrificed amount that counts - it's the employer's contributions. So for every £1 that is sacrificed, how much goes in to the pension from the employer?  It may be 1 for 1, but it's this number you need to work out the remaining allowance?

Oh really? So take the current tax year where he's paid £30331 in total to his pension. But of that, £7583 was employer contributions and £22748 was employee contributions. So you're saying it would only be the £7583 that counts towards his annual allowance? How come the lion's share which is employee contributions, is ignored?

ColdIron

boots_babe said:

Marcon said:

boots_babe said:

My next question is, to use the carry forward, would he pay into his SIPP £17239 (then 20% tax would be added into SIPP automatically)? 

Or does he pay in that minus 20% so £13791 (such that when 20% tax is added into his SIPP, the total would be £17239)?

Very grateful for anyone who could sense check, many thanks.

He pays in net of tax to the SIPP, so that when the 25% top up is added by the provider, it brings him up to the required total - but as others have said, I think you have missed out the 'actual' employer contribution (as opposed to the salary sacrificed 'employer contribution'), which needs to be included for annual allowance purposes. Only then can you work out how much headroom he has for carry forward.

Thanks Marcon.  So to make sure I'm clear, if he had a round £10k of annual allowance leftover, he can only pay £8k into the pension, as the £10k includes the 20% that would be added within the SIPP? And I assume he can still claim back on top the extra 20% due to being a 40% taxpayer through the usual route.

Yes and yes

Not sure what you mean re missing out the employer contributions though? Within his actual pension account we can see how much is paid in per month. The total is £2527 per month currently, which maps onto what we see on his payslip, which is broken down into £1895 employee contribution and £632 employer contribution. All the annual figures I posted above for each tax year, refer to the total that is paid into his workplace pension, which is inclusive of both the employer and employee contributions.

FWIW I can't see any obvious missing employer contribution. The SIPP is presumably unconnected with his employer so wouldn't be expected to have any. The workplace pension, whilst in practise is making a single employer contribution (as is the norm with SS), will be made up of an employee contribution (with the sacrificed salary) plus an actual employer contribution

Unless you mean he must also factor in the NI savings the employer will be making?

Definitely not. Although as a consequence of SS, he and his employer will be getting a break on NI

Unless I've missed something your methodology and calcs look OK to me

stormCat99

Thanks for bearing with my questions ColdIron, I really appreciate your help. Looks like I'm clear with everything now so that's good.

Marcon

boots_babe said:

2023/2024 tax year (all figures given as the tax year end forecast totals)

Total earnings £147080 / Base salary £94786.

£30331 paid into work pension via sal sac 

£0 paid into SIPP

Annual allowance £60k

Allowance remaining £60k - £30331 = £29669

2022/2023 tax year:

Total earnings £147080  / Base salary £94786.

£30331 paid into work pension via sal sac

£5k paid into SIPP (£4k contribution + £1k tax added into SIPP)

Annual allowance £40k

Allowance remaining £40k - £30331 - £5k = £4669

2021/2022 tax year:

Total earnings £130531  / Base salary £94786.

£28909 paid into work pension via sal sac

£12494 paid into SIPP (including contribution + 20% tax added)

Annual allowance £40k

Allowance remaining £40k - 28909 - £12494 = minus £1403.

2020/2021 tax year:

Total earnings £109981 / Base salary £94786.

£26027 into work pension via sal sac 

£0 paid into SIPP 

Annual allowance £40k

Allowance remaining £40k - £26027 = £13973

It's your references to 'salary sacrifice' above that made me (and others) think the employer contribution - which certainly isn't salary sacrifice - hadn't been included. You've now clarified that it has, so all good!