Pension Annual Allowance

evie2468

Query regarding annual allowance, any help appreciated greatly.

I have had conflicting advice on this issue from the government Moneyhelper telephone helpline, I have spoken to 3 different people who are telling me different things. 

I want to pay in as much as I am allowed into a SIPP.

I understand my annual allowance is 100% of my gross pay minus my pension input(I am in a DB scheme).   The annual allowance is 60,000 this tax year – way above my earnings.

To calculate MY annual allowance I take my gross pay at £28,000 minus the amount of pension input I have made, say £8,000.  So I can pay in £16,000, the govt add tax relief which brings it to my annual allowance of £20,000.  I think that is correct so far.

I have looked at carry forward to use any unused allowances from the previous years.  Here is where the advice conflicts and I have no idea who is correct:

1)       As I have not earned enough to pay the full £60,000 annual allowance into a sipp I cannot carry forward.

OR

2)      I have used 100% of MY annual allowance and so I can carry forward unused annual allowance amounts from 3 previous years.

Who is correct?  Thanks in advance.

Sarahspangles

There are two completely separate limits - your relevant UK earnings and your Annual Allowance of £60,000.

What is confusing you is assuming they are the same thing. You need to check your proposed contribution against both.

For the AA, the relevant figure for your DB pension is something called the Pension Input Amount and - plot twist - it’s not the amount you pay in. If you read up on that in the guidance provided by your own scheme, it may become clearer. The reason for mentioning it up front is that the lead time for getting your PIA figure may affect the timing of your contribution.

Carry forward of AA is possible, if you exceed the limit of £60,000. But there is no carry forward of relevant UK earnings, so that then becomes your limit.

DRS1

Sorry to confuse things further but if you have a DB Scheme don't you need to know your Pension Input Amount not just your own contributions to the DB Scheme?

zagfles

Sarahspangles said:

There are two completely separate limits - your relevant UK earnings and your Annual Allowance of £60,000.

What is confusing you is assuming they are the same thing. You need to check your proposed contribution against both.

For the AA, the relevant figure for your DB pension is something called the Pension Input Amount and - plot twist - it’s not the amount you pay in. If you read up on that in the guidance provided by your own scheme, it may become clearer. The reason for mentioning it up front is that the lead time for getting your PIA figure may affect the timing of your contribution.

Carry forward of AA is possible, if you exceed the limit of £60,000. But there is no carry forward of relevant UK earnings, so that then becomes your limit.

Yes, so on earnings of £28k the tax relief limit will be £28k minus employee contributions made to the DB scheme. Usually that would be taxable pay as the DB contributions would almost certainly be deducted from pay before tax (either "net pay" or salary sacrifice). That's the GROSS limit, you'd pay in 80% of that to a SIPP or other RAS scheme, and they'll claim the other 20% in tax relief. 

That constraint will mean that the annual allowance of £60k plus carry forwards almost certainly isn't an issue, as you'll be nowhere near it, unless some very unusual circumstances (eg massive payrise in a final salary scheme). So you can forget about the AA, PIAs etc. Just the tax relief limit above. 

Sarahspangles

zagfles said:

Yes, so on earnings of £28k the tax relief limit will be £28k minus employee contributions made to the DB scheme. Usually that would be taxable pay as the DB contributions would almost certainly be deducted from pay before tax (either "net pay" or salary sacrifice). That's the GROSS limit, you'd pay in 80% of that to a SIPP or other RAS scheme, and they'll claim the other 20% in tax relief. 

And salary sacrifice also causes confusion. If you give up salary through salary sacrifice, it isn’t part of your earnings, you don’t claim or receive tax relief on it when it’s paid into your pension. But nor have you paid tax (or NI) on it.

Albermarle

DRS1 said:

Sorry to confuse things further but if you have a DB Scheme don't you need to know your Pension Input Amount not just your own contributions to the DB Scheme?

For clarity, as far as I understand it. The Pension Input amount is  relevant for the Annual Allowance, but when calculating how much tax relief you are limited to, then the actual DB contributions you make are the relevant figure. 

DRS1

Albermarle said:

DRS1 said:

Sorry to confuse things further but if you have a DB Scheme don't you need to know your Pension Input Amount not just your own contributions to the DB Scheme?

For clarity, as far as I understand it. The Pension Input amount is  relevant for the Annual Allowance, but when calculating how much tax relief you are limited to, then the actual DB contributions you make are the relevant figure. 

Yes To be fair the OP was asking about the Annual Allowance.  I missed the fact, as pointed out by @zagfles, that the Annual Allowance was a red herring.

evie2468

DRS1 said:

Sorry to confuse things further but if you have a DB Scheme don't you need to know your Pension Input Amount not just your own contributions to the DB Scheme?

Yes you do. The pension scheme will give me this after the tax year, meanwhile I have the formula to work this out, roughly. But I'm ok and understand that bit. It's the latter I've been told 2 different things.

evie2468

Sarahspangles said:

There are two completely separate limits - your relevant UK earnings and your Annual Allowance of £60,000.

What is confusing you is assuming they are the same thing. You need to check your proposed contribution against both.

For the AA, the relevant figure for your DB pension is something called the Pension Input Amount and - plot twist - it’s not the amount you pay in. If you read up on that in the guidance provided by your own scheme, it may become clearer. The reason for mentioning it up front is that the lead time for getting your PIA figure may affect the timing of your contribution.

Carry forward of AA is possible, if you exceed the limit of £60,000. But there is no carry forward of relevant UK earnings, so that then becomes your limit.

Thanks.  You're correct they are 2 separate things, this I get. What I don't understand is that 2 people from govt pensions can tell me 2 different things. One: yes I can carry forward if I have put in 100% of my  annual allowance which is gross pay minus pension ( see my calc, I understand how db is calculated and is not just what I've paid in).  2 : No you can't because you haven't exceeded the annual allowance of 60000, 

evie2468

Albermarle said:

DRS1 said:

Sorry to confuse things further but if you have a DB Scheme don't you need to know your Pension Input Amount not just your own contributions to the DB Scheme?

For clarity, as far as I understand it. The Pension Input amount is  relevant for the Annual Allowance, but when calculating how much tax relief you are limited to, then the actual DB contributions you make are the relevant figure. 

No, DB schemes don't work on what you put in. You need a calculation to work it out or wait till your scheme can give you the figures.

Albermarle

evie2468 said:

Sarahspangles said:

There are two completely separate limits - your relevant UK earnings and your Annual Allowance of £60,000.

What is confusing you is assuming they are the same thing. You need to check your proposed contribution against both.

For the AA, the relevant figure for your DB pension is something called the Pension Input Amount and - plot twist - it’s not the amount you pay in. If you read up on that in the guidance provided by your own scheme, it may become clearer. The reason for mentioning it up front is that the lead time for getting your PIA figure may affect the timing of your contribution.

Carry forward of AA is possible, if you exceed the limit of £60,000. But there is no carry forward of relevant UK earnings, so that then becomes your limit.

Thanks.  You're correct they are 2 separate things, this I get. What I don't understand is that 2 people from govt pensions can tell me 2 different things. One: yes I can carry forward if I have put in 100% of my  annual allowance which is gross pay minus pension ( see my calc, I understand how db is calculated and is not just what I've paid in).  2 : No you can't because you haven't exceeded the annual allowance of 60000, 

You are overestimating the quality and the training of the Govt advisors/HMRC call centre staff.
We also often  see posts where pension providers, ISA providers etc give incorrect/misleading advice as well.
Plus even Which magazine.