pension annual allowance (up to 100% of earning) what is included?

byngga

I'm looking to make a lump sum payment into my workplace pension this tax year, however, I think it will put me over the "100% of earnings" for this tax year.  

I am a basic rate taxpayer and have only 1 source of income (my full time job) and my regular pension contributions are taken out of my gross pay (before tax).  I have 2 questions:-

1. My earnings - Is that my gross salary (the big number before any deductions?).

2. What pension contributions 'count'?  I see in my payments what I have paid each month... and what my employer has paid.  Do both these count towards the limit?  If my employers payments count, then I'm thinking the limit I can pay will surely work out less that 100% of my earnings?

Dazed_and_C0nfused

1.  Not for your personal contributions no.  It's usually your expected P60 taxable pay figure (plus any non patrolled company benefits).

2.  Are you talking about the limit for tax relief (see answer to 1) or the annual allowance?

Grumpy_chap

Employer pension contributions do not count towards the "earnings" limit, but they do count towards Annual Allowance.

byngga

Yes, I'm talking about the limit for tax relief. 

I'm still confused.  So, say my salary is 32k pa - I should be able to pay 32K into my pension (100% of my earnings).... but, say my employers contributions add up to 2k pa.... does it mean my personal payments can only be 30k ?

Dazed_and_C0nfused

byngga said:

Yes, I'm talking about the limit for tax relief. 

I'm still confused.  So, say my salary is 32k pa - I should be able to pay 32K into my pension (100% of my earnings).... but, say my employers contributions add up to 2k pa.... does it mean my personal payments can only be 30k ?

Salary is irrelevant for this.

What will your P60 show your taxable pay as?

Linton

byngga said:

Yes, I'm talking about the limit for tax relief. 

I'm still confused.  So, say my salary is 32k pa - I should be able to pay 32K into my pension (100% of my earnings).... but, say my employers contributions add up to 2k pa.... does it mean my personal payments can only be 30k ?

The gross personal pension contributions are limited by gross earned income..  Employer contributions dont come into the earnings limit.  There is a separate £60K Annual Allowance which does include employer contributions but since you earn £32K it is only the earned income limit which matters.

Marcon

This might be helpful reading: https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/tax-relief-and-your-pension

C4rlos12345678

byngga said:

Yes, I'm talking about the limit for tax relief. 

I'm still confused.  So, say my salary is 32k pa - I should be able to pay 32K into my pension (100% of my earnings).... but, say my employers contributions add up to 2k pa.... does it mean my personal payments can only be 30k ?

Yes ....30k 

As that is your P60 amount

byngga

Dazed_and_C0nfused said:

byngga said:

Yes, I'm talking about the limit for tax relief. 

I'm still confused.  So, say my salary is 32k pa - I should be able to pay 32K into my pension (100% of my earnings).... but, say my employers contributions add up to 2k pa.... does it mean my personal payments can only be 30k ?

Salary is irrelevant for this.

What will your P60 show your taxable pay as?

What my P60 will show as 'taxable pay' is guesswork as I don't get a P60 till the end of the tax year.

But, I guess it will be a lot less than my salary (because my pension contributions get deducted before tax).

So, as a simplified example, if my salary is 32k and I pay 25% of my earnings each month into my pension scheme, my taxable pay will on my P60 be 24k.... so, would that mean I can still pay a 24k lump sum into the pension without being taxed on it?

Dazed_and_C0nfused

byngga said:

Dazed_and_C0nfused said:

byngga said:

Yes, I'm talking about the limit for tax relief. 

I'm still confused.  So, say my salary is 32k pa - I should be able to pay 32K into my pension (100% of my earnings).... but, say my employers contributions add up to 2k pa.... does it mean my personal payments can only be 30k ?

Salary is irrelevant for this.

What will your P60 show your taxable pay as?

What my P60 will show as 'taxable pay' is guesswork as I don't get a P60 till the end of the tax year.

But, I guess it will be a lot less than my salary (because my pension contributions get deducted before tax).

So, as a simplified example, if my salary is 32k and I pay 25% of my earnings each month into my pension scheme, my taxable pay will on my P60 be 24k.... so, would that mean I can still pay a 24k lump sum into the pension without being taxed on it?

No, if you pay separately to a personal pension or SIPP then you won't save any income tax.

But you will only need to pay £19.2k and then basic rate relief will be added to make a pension fund of £24k.

Which is a really better for you as you will have received £4.8k in pension tax relief whilst paying about £2.3k in tax on your earnings.

Grumpy_chap

C4rlos12345678 said:

byngga said:

Yes, I'm talking about the limit for tax relief. 

I'm still confused.  So, say my salary is 32k pa - I should be able to pay 32K into my pension (100% of my earnings).... but, say my employers contributions add up to 2k pa.... does it mean my personal payments can only be 30k ?

Yes ....30k 

As that is your P60 amount

I am not sure that is correct.

If the OP earns salary £32k plus employer pension contributions of £2k, the OP can still make personal pension contributions of £32k gross.  The £2k employer pension contributions are not counted in the "earnings" limit for contribution tax relief, but would count towards Annual Allowance (though that seems irrelevant here).

The £32k of personal pension contributions that the OP can make includes any employee contributions made via payroll.  If the OP is making contributions from taxed income, then they need to allow for the "grossed up" value within that £32k.