Topping Up Workplace Pension

LeafGreen

After years of fairly diligent but low risk saving, I have found myself with the nice problem of having "too much" cash compared to my pension savings and other investments.  In fact the only non-pension savings I have are in cash ISAs and regular cash savings accounts.

While I am still very much not a risk taker, I acknowledge that I do need to consider that my position is not really optimal.  Therefore I have been looking at ways of addressing the imbalance.

One thing I am looking into is topping up my workplace pension as this would have the benefits of tax relief.  If I have understood it correctly, I should be able to pay into my pension with my unused allowance from the previous 3 tax years.  I have done some calculations - basically the difference between my total basic taxable pay (which is < £60Kpa), and the total of my own employee pension contributions for the 2021-22, 2022-23 and 2023-24 tax years and this comes to around £90K in total.

I have spoken to my pension provider and they said I can make a top-up payment, but it would be made gross and I would have to claim the tax relief back myself.

So my questions are:-
1. Does this sound correct/valid/sensible or could I have completely mis-understood what is possible?  This type of thing is new to me, but I'm thinking I should be able to make payments (potentially more than one) and as long as I don't exceed the £90K in total then I am OK. 
Let's say I pay £80K in, should I be able to claim £20K relief, based on the fact that the gross amount would have been £100K)?
2. If I do go ahead with it, how would I find out how to claim the tax relief from HMRC?  Is that likely to be a simple process?  Would I need to complete some kind of tax return?

Cheers all and Happy Christmas!

Sarahspangles

You need to understand there are two limits.

1. Relevant UK earnings - normally taxable earnings. If you earn under £60k this is the limit that applies to you

2. Annual Allowance of (currently) £60k with some carry forward.

Your limit will be your earnings, if (say) you have £50k earnings you can contribute 80% of that into a pension and the tax man will top up the remaining 20%.

If your employee pension contributions are net pay (taken off your pay packet before tax) then that is the mechanism used to give you tax relief on that portion. You’d need to find out what arrangement is offered if you make an additional contribution. It may be relief at source where the 20% tax relief is claimed from HMRC by the pension scheme

Edited as I reread your question - if your employer pension scheme simply allows you to pay in a sum and you have to claim the tax relief yourself and especially if your employer isn’t matching your contribution, it may be simpler to set up an additional pension or SIPP. With those, the relief at source arrangements would apply and the tax relief would be claimed automatically.

You are then only likely to have to interact with HMRC yourself if you are/become a higher rate tax payer.

With a separate pension you have the option of drip feeding in small amounts as the years pass, without having to interact with payroll and also of using the pension to give you flexibility e.g. to work part time.

The other mechanism to get tax relief is salary sacrifice but I think you would have said if this was available to you, many people have had it rolled out relatively recently.

If you plan to contribute £90k all is not lost if you can do so over two tax years. 

QrizB

LeafGreen said:

One thing I am looking into is topping up my workplace pension as this would have the benefits of tax relief.

...

I have spoken to my pension provider and they said I can make a top-up payment, but it would be made gross and I would have to claim the tax relief back myself.

Pretty much all pension contributions made by an individual will benefit from tax relief.

If your employer's scheme is going to make you claim the relief yourself, it might be simpler to open a separate personal pension / SIPP and make Relief At Source contributions to that?

Dazed_and_C0nfused

I have spoken to my pension provider and they said I can make a top-up payment, but it would be made gross and I would have to claim the tax relief back myself.

That is very unusual.  Are you in a defined benefit scheme?

LeafGreen

Thankyou both, I will do some reading up on the separate pension/SIPP options although ideally I’d like to keep things in one place (and I think the fees on my work pension are quite low) it’s sounds like it’s definitely worth looking into.
My work scheme is salary sacrifice and I have already been ramping up my ongoing contributions (now 40% employee+15% employer) as another way to redress my balance of cash vs investments - there would not be any employer matching on lump sum contributions.

From reading your replies, I think I have perhaps been getting slightly ahead of myself in that I now think I wouldn’t be able to pay in the full £90K - just up to 80% of that amount.

I also started getting a bit confused thinking about whether I need to take the personal allowance into account, because on that part of my earnings, I haven’t paid any tax on to begin with.

Anyway, thanks for your time in replying.

LeafGreen

Dazed_and_C0nfused said:

I have spoken to my pension provider and they said I can make a top-up payment, but it would be made gross and I would have to claim the tax relief back myself.

That is very unusual.  Are you in a defined benefit scheme?

No, it’s defined contribution.  I was a bit surprised myself when the person I spoke to said that, especially as their website says they will claim it automatically - but I assumed it was different with workplace pensions vs a private pension.  I think I will call them back to clarify that.

bjorn_toby_wilde

LeafGreen said:

Dazed_and_C0nfused said:

I have spoken to my pension provider and they said I can make a top-up payment, but it would be made gross and I would have to claim the tax relief back myself.

That is very unusual.  Are you in a defined benefit scheme?

No, it’s defined contribution.  I was a bit surprised myself when the person I spoke to said that, especially as their website says they will claim it automatically - but I assumed it was different with workplace pensions vs a private pension.  I think I will call them back to clarify that.

Maybe they mean you need to claim back the higher rate tax. You’d have to claim that back yourself in this situation.

Normally providers only claim back basic rate tax from HMRC if you make a one off contribution.

AlanP_2

Is it definitely a salary sacrifice scheme as if it is that 55% contribution is all employer with zero from you as an employee contribution?

If your employer scheme is salary sacrifice then as far as HMRC are concerned you don't  earn c£60k (assuming that is the pre sacrifice amount). You earn whatever will be on your P60.

Given that it is a SS scheme why not increase your sacrifice level to the maximum, which is down to minimum wage level, and use cash savings to live off?

Keeps pension in one place as you want, handles tax relief automatically and gains the benefit of saving on NI as well.

Albermarle

Dazed_and_C0nfused said:

I have spoken to my pension provider and they said I can make a top-up payment, but it would be made gross and I would have to claim the tax relief back myself.

That is very unusual.  Are you in a defined benefit scheme?

As the provider in this case is normally only receiving employer contributions ( as it is a salary sacrifice scheme), then probably their system can not handle lump sum payments from employees.
AIUI, most providers can handle different methods of paying in , but some can not. 

As said by the previous poster, increasing the salary sacrifice to the maximum allowed is probably the best route forward for the OP, so this issue then goes away. 

MallyGirl

LeafGreen said:

Thankyou both, I will do some reading up on the separate pension/SIPP options although ideally I’d like to keep things in one place (and I think the fees on my work pension are quite low) it’s sounds like it’s definitely worth looking into.
My work scheme is salary sacrifice and I have already been ramping up my ongoing contributions (now 40% employee+15% employer) as another way to redress my balance of cash vs investments - there would not be any employer matching on lump sum contributions.

From reading your replies, I think I have perhaps been getting slightly ahead of myself in that I now think I wouldn’t be able to pay in the full £90K - just up to 80% of that amount.

I also started getting a bit confused thinking about whether I need to take the personal allowance into account, because on that part of my earnings, I haven’t paid any tax on to begin with.

Anyway, thanks for your time in replying.

In your opening post you said that your salary was less than £60k?
if so then that is your limit of gross (including tax relief) contributions. Previous years allowances only come into play if you earn more than £60k

LeafGreen

MallyGirl said:

LeafGreen said:

Thankyou both, I will do some reading up on the separate pension/SIPP options although ideally I’d like to keep things in one place (and I think the fees on my work pension are quite low) it’s sounds like it’s definitely worth looking into.
My work scheme is salary sacrifice and I have already been ramping up my ongoing contributions (now 40% employee+15% employer) as another way to redress my balance of cash vs investments - there would not be any employer matching on lump sum contributions.

From reading your replies, I think I have perhaps been getting slightly ahead of myself in that I now think I wouldn’t be able to pay in the full £90K - just up to 80% of that amount.

I also started getting a bit confused thinking about whether I need to take the personal allowance into account, because on that part of my earnings, I haven’t paid any tax on to begin with.

Anyway, thanks for your time in replying.

In your opening post you said that your salary was less than £60k?
if so then that is your limit of gross (including tax relief) contributions. Previous years allowances only come into play if you earn more than £60k

Thanks for this, I have perhaps been barking up the wrong tree and this bright idea might be a non-starter - my base pensionable salary is well under £60K!

To clarify another point that someone mentioned, the 55% contribution is 40% me and 15% employer.  I think I can increase my 40% a little further and stay above NMW, which is what I will do.