Annual Allowance - SIPP

evie2468

I want to put into a SIPP as much as I am allowed.  I am in a defined benefit scheme and have a calculator to work out how much my pension has been added to.   But until the end of the team year I will not 100% know the figures, just a pretty good estimate.  Am I correct in thinking that I must put the money in this tax year for earnings this year. In which case it will be a bit of guesswork.  Also do I work out the amount by taking my increase in the DB scheme off my net pay; I will be under the AA limit. Many thanks

zagfles

If as you say you're sure you'll be under the AA limit then presumably you're just worried about the tax relief limit. That's easy, it's just your taxable earnings (your contributions to the DB pension will almost certainly already be deducted from your taxable earnings). That's the gross so you'd put 80% of that into a SIPP and the SIPP would claim the 20% tax relief. 

So eg if salary is £30k and you contribute 10% as employee DB contribution then your taxable earnings would be £27k so you could pay in £21600 into a SIPP and the SIPP provider will claim £5400 tax relief. 

It's gets complicated if you look like exceeding the AA but you are likely to have a lot of carry forwards if you've not been making big contributions in the past. 

evie2468

Thanks I thought DB worked differently and it wasn't what you paid into the pension through earnings, but what the DB pension has increased in value by over the year.  I have a spreadsheet to work this out.  

kempiejon

evie2468 said:

Thanks I thought DB worked differently and it wasn't what you paid into the pension through earnings, but what the DB pension has increased in value by over the year.  I have a spreadsheet to work this out.  

Yes I understand the DB is a calculation based on inflation adjusted change in value of the benefit. DC is just the amount contributed.
I have used this calculator https://www.mandg.com/pru/tools-calculators/defined-benefit-pension-input-tool/index.html
To come back to your question about working it out before you have annual figures you do have to make an educated guess. 

evie2468

kempiejon said:

evie2468 said:

Thanks I thought DB worked differently and it wasn't what you paid into the pension through earnings, but what the DB pension has increased in value by over the year.  I have a spreadsheet to work this out.  

To come back to your question about working it out before you have annual figures you do have to make an educated guess. 

Thanks, so I calculate the pension and take this off my net pay?

zagfles

evie2468 said:

Thanks I thought DB worked differently and it wasn't what you paid into the pension through earnings, but what the DB pension has increased in value by over the year.  I have a spreadsheet to work this out.  

That's for the AA. You said you'll be under the AA limit. 

zagfles

kempiejon said:

evie2468 said:

Thanks I thought DB worked differently and it wasn't what you paid into the pension through earnings, but what the DB pension has increased in value by over the year.  I have a spreadsheet to work this out.  

Yes I understand the DB is a calculation based on inflation adjusted change in value of the benefit. DC is just the amount contributed.
I have used this calculator https://www.mandg.com/pru/tools-calculators/defined-benefit-pension-input-tool/index.html
To come back to your question about working it out before you have annual figures you do have to make an educated guess. 

You need the PIA for the AA calculation. NOT the tax relief limit. OP said AA wasn't an issue. 

kempiejon

The way I did it was take the pension input amount off my gross salary and add enough net pay to bring the total paid into the pension to make up to my gross salary figure.

zagfles

kempiejon said:

The way I did it was take the pension input amount off my gross salary and add enough net pay to bring the total paid into the pension to make up to my gross salary figure.

Then you did it wrong. That makes no sense at all. You are confusing the tax relief limit, which depends on earnings but not PIAs, with the AA rules, which depend on PIAs but not earnings (except for very high earners subject to the taper)

kempiejon

zagfles said:

kempiejon said:

The way I did it was take the pension input amount off my gross salary and add enough net pay to bring the total paid into the pension to make up to my gross salary figure.

Then you did it wrong. That makes no sense at all. You are confusing the tax relief limit, which depends on earnings but not PIAs, with the AA rules, which depend on PIAs but not earnings (except for very high earners subject to the taper)

Ho well. So were my 5%/13% employee/employer monthly DB contributions relevant? Not the 16 times change in value

zagfles

kempiejon said:

zagfles said:

kempiejon said:

The way I did it was take the pension input amount off my gross salary and add enough net pay to bring the total paid into the pension to make up to my gross salary figure.

Then you did it wrong. That makes no sense at all. You are confusing the tax relief limit, which depends on earnings but not PIAs, with the AA rules, which depend on PIAs but not earnings (except for very high earners subject to the taper)

Ho well. So were my 5%/13% employee/employer monthly DB contributions relevant? Not the 16 times change in value

I've said several times. PIA (16x change in value etc) is relevant for the AA. Not the tax relief limit. They are separate things. 

See Tax Relief and Annual Allowance | M&G Wealth Adviser