Unused Carry Forward

Augusta_Carp

So I didn't use my unused carry forward last year when I started my SIPP because it was all quite complicated (working out my LGPS contributions) and so close to the end of the tax year. 

https://forums.moneysavingexpert.com/discussion/6517595/leaving-work-soon-sipp-or-not-worth-it#latest

However, I really regret this now and think it is important for me to use the carry forward this year to maximise my small SIPP income in the future until I can get my DB and state pension.  (I will be giving up work next year probably to care for someone so it will be my last year of salary. I will be 57 and don't want to draw my DB too early.)

If I work out the unused from the last two years, can I add that to my pension now - and then add the contribution for this year nearer the end of the financial year?

If I went over the Annual Allowance by mistake, what happens? 

(The other option I have is to increase my LGPS AVC payments to the max now but I'm not quite sure of the benefit of this as I can't access them till I take my LGPS pension and I can't find out any info as to how much additional pension the AVC would enable me to buy in order to see how much earlier that would allow me to take my LGPS pension.)

Thank you!

Dazed_and_C0nfused

Do you earn enough for carry forward to be relevant?

zagfles

You don't seem to have understood what people were telling you in the other thread. 

Firstly, before even thinking about the annual allowance, you need to work out how much you can contribute and stay within the tax relief limit. That's basically your salary minus your LGPS contributions. This limit is nothing to do with the annual allowance, there is no carry forwards for this limit.

For instance if your salary is £44,000 and you contribute £2,500 to the LGPS, then you can only contribute £41,500 gross to a SIPP. 

The annual allowance this year is £60,000, and the AA calculation for a DB scheme is the increase in pension value so for the LGPS is likely to be around a third of salary, ie around £15k. (This could be significantly different if you have final salary benefits, and inflation rates used can affect it).

So even if you contribute the maximum you can into a SIPP, your total PIA for the purposes of the AA will be around £57k, which is within this year's annual allowance.

If the PIA is a bit higher, as it can be for DB schemes, eg if the inflation measure the scheme uses is different to the inflation measure HMRC use, or you have a final salary link, it might exceed £60k. And so you might use a little bit of carry forwards. 

But your question "If I work out the unused from the last two years, can I add that to my pension now" shows you really haven't understood. 

Triumph13

As zagfles said.  The most you can pay in is your salary for the tax year, less your contributions to the LGPS.  Carry forward won't come into the equation unless inflation shoots back up again by this September.

If you do exceed the annual allowance, the excess stays in your SIPP, but also gets added back to your taxable income for the year.  That raises the spectre of being taxed on it twice - once now and once when you withdraw it.  That may not be an issue if you will have plenty of unused personal allowance.  Don't forget to allow for unsheltered interest income on any inheritance.

One final consideration.  Are you sure you will not get another job once your caring commitments are over?  Sticking all of this year's salary into a SIPP will net you a £7.5k profit if you can get it all back out again tax free, but at the cost of limiting future contributions to £10k pa.  Probably not an issue, but worth being aware of.

Albermarle

but at the cost of limiting future contributions to £10k pa

To be 100% clear that £10K limit would include employer contributions + employee contributions + tax relief. 

Marcon

Albermarle said:

but at the cost of limiting future contributions to £10k pa

To be 100% clear that £10K limit would include employer contributions + employee contributions + tax relief. 

...assuming that any future employment offers a defined contribution pension. If OP returns to a job with a DB scheme (not impossible if returning to public service employment), that limit does not apply.

Albermarle

Marcon said:

Albermarle said:

but at the cost of limiting future contributions to £10k pa

To be 100% clear that £10K limit would include employer contributions + employee contributions + tax relief. 

...assuming that any future employment offers a defined contribution pension. If OP returns to a job with a DB scheme (not impossible if returning to public service employment), that limit does not apply.

Good point. I am aware that taking a DB pension ( or an annuity) does not trigger the MPAA, I forget that contributing to a DB pension is also unaffected.