Teachers Pension - Additional pension and annual contrib limts

dudload

Hi All,

Looking for some advice to make sure i don't breach the £60k annual pension contribution limit.

I'm currently looking to do a lump sum contribution over 2 years to get £8k additional pension. This is quite a big contribution, but i can't find anywhere whether or not it will put me over the £60k annual contribution amount, given i'm also making regular monthly contributions to the DB scheme.

The things i find online are made even more complicated given part of my pension is on final salary and the other on career average!

thanks in advance, 

CM

Dazed_and_C0nfused

dudload said:

Hi All,

Looking for some advice to make sure i don't breach the £60k annual pension contribution limit.

I'm currently looking to do a lump sum contribution over 2 years to get £8k additional pension. This is quite a big contribution, but i can't find anywhere whether or not it will put me over the £60k annual contribution amount, given i'm also making regular monthly contributions to the DB scheme.

The things i find online are made even more complicated given part of my pension is on final salary and the other on career average!

thanks in advance, 

CM

It isn't really a "contribution" limit, it's an annual allowance and for DB scheme the contribution amount isn't the important factor.

TPS have a lot of info here

https://www.teacherspensions.co.uk/members/faqs/working-life/annual-allowance-and-lifetime-allowance.aspx

Also, I presume you are aware of the tax relief impacts of making large one off payments, presumably outside of payroll?

Universidad

Well, to add 8K of annual pension over 2 years, that's 4K extra pension each year that you're adding on top of anything else (such as the benefits you're accruing normally throughout the year).

In and of itself, adding 4K of annual pension in a year will put you above the 60K AA limit.

4000 x 16 = 64,000

So the answer is definitive: you will breach the AA limit by doing this. There's further maths required to accurately calculate the AA than the above, but nothing more required to understand if you're in breach - you would be.

However, the Annual Allowance does allow you to carry forwards unused allowances from previous years (noting that previous years will have had a 40K rather than 60K limit). So if you haven't been getting close to the AA limit before this year, then you may find you don't practically hit the limit.

There is another limit, however, which is your annual salary. You can't get tax relief on an amount greater than your salary, and the scheme will not, I think, let you pay in more than your salary.

So you may also find that you can't contribute an amount that would add 4,000 of annual pension in one year because this would exceed your annual salary. (Depends on how much it costs to buy 4K of added pension, and what your salary is, but it would be a very high salary that could swallow the level of contribution I'd expect this to take.)

hugheskevi

Universidad said:

So the answer is definitive: you will breach the AA limit by doing this. There's further maths required to accurately calculate the AA than the above, but nothing more required to understand if you're in breach - you would be.

A little pedantic, but the answer is not definitive.

This is because the OP has final salary benefits, and in future negative Pension Inputs in one public service pension scheme with connected benefits to another public service pension scheme can be offset against accrual in the other scheme. So although purchase of £4000 of Added Pension will have a Pension Input of £64,000 if there is a negative PIA in the final salary scheme sufficient to cover £4,000 plus the value of new normal pension accrual, the OP would not breach. Usually that would be fanciful, but with a high adjustment to starting values for 2023/24 Pension Input Period it might be possible.

An interesting consequence of the change will make it nearly impossible for an individual member to accurately validate the Pension Inputs they are provided with by a scheme, as the pension input from a scheme still can be no lower than zero, but any negative amount offset against a positive balance in a connected scheme. Realistically, members have little choice but to accept the numbers they are provided with by the scheme, unless they are preposterously inaccurate.