Annual Allowance - SIPP

kempiejon

zagfles said:e

I've said several times. They are relevant for the PIA/AA, not the tax relief limit. They are separate things. 

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

And it might be sinking in so cheers for soldiering on with me. Now back to evie2468's spreadsheet

evie2468

Thanks for comments. So to clarify.... I'm definitely below AA.  I want to put in as much as I am allowed. So do I take my net pay and subtract the PIA then this is what I can put into a sipp.  (In my case I think around 25000).

zagfles

evie2468 said:

Thanks for comments. So to clarify.... I'm definitely below AA.  I want to put in as much as I am allowed. So do I take my net pay and subtract the PIA then this is what I can put into a sipp.  (In my case I think around 25000).

No. Read what I wrote more carefully, and see the link above. 

AlanP_2

There are two applicable limits you need to consider:

1) Taxable Income in tax year

2) Annual Allowance


Number 1 is definitely relevant to you and Number 2 may be.

How much is your Gross / Taxable pay as that will help us to work with some real numbers rather than hypothetical cases which may make things clearer?

evie2468

Thanks. My taxable pay will be around 25000. Then I take off my PIA. Not sure what I have misunderstood here.

AlanP_2

evie2468 said:

Thanks. My taxable pay will be around 25000. Then I take off my PIA. Not sure what I have misunderstood here.

So only the EARNINGS LIMIT is relevant to you (unless your PIA is going to be around the £40k plus level which I doubt).

Therefore ignore the PIA and calculate 80% of your taxable pay and that is what your maximum GROSS SIPP contribution can be.

So on TAXABLE PAY (not Net Pay or Gross Pay) of £25,000 it would be £20k gross with your provider claiming £5 of tax relief from HMRC on your behalf.

zagfles

AlanP_2 said:

evie2468 said:

Thanks. My taxable pay will be around 25000. Then I take off my PIA. Not sure what I have misunderstood here.

So only the EARNINGS LIMIT is relevant to you (unless your PIA is going to be around the £40k plus level which I doubt).

Therefore ignore the PIA and calculate 80% of your taxable pay and that is what your maximum GROSS SIPP contribution can be.

So on TAXABLE PAY (not Net Pay or Gross Pay) of £25,000 it would be £20k gross with your provider claiming £5 of tax relief from HMRC on your behalf.

Don't know why we bother, several people told OP the same thing in her previous thread a month ago. Pension Annual Allowance — MoneySavingExpert Forum She isn't going to believe us. 

evie2468

Thank you. You are correct but my previous thread concerned clarifying misleading information given by the govt pension service and it concerned carry forward. So thanks to that thread I understand this. This question is different as it concerns how I work out how much I am allowed to put in. Thanks again.

Secret2ndAccount

Stage 1: You need to check your contributions against the Annual Allowance. Add together your PIA plus your SIPP contrib + the tax relief. If that total is less than 60k (or potentially more than 60k with carry-forward) then you don't need to worry about Annual Allowance - move on to stage 2

Stage 2: Forget about the PIA. The PIA is not used in Stage 2. PIA is not part of this calculation. You don't need to know what your PIA is because you aren't going to use it because it isn't part of this calculation. One other thing: this second calculation doesn't involve the PIA at all. There is no subtraction of the PIA. PIA doesn't feature in this second calculation. 
For this second calculation you need your taxable income. Then you take off any personal pension contributions you may have paid via your employer. Not the PIA. It isn't the PIA. It's just any money you paid into the pension scheme. Could be nothing if you are lucky. Could be a percentage of your salary. It will be a number that is shown on your payslip as a deduction. Now you can pay 8/10ths of what's left into the SIPP.
If you earn 25k, and pay 2.5k into your pension (not the PIA, just the payments) then you are left with 22,500.
Multiply 22,500 x 0.8 = 18,000
You pay 18,000 into the SIPP. Gov't tops it up to 22,500. That's all you can contribute. Any more and you are not entitled to the tax top-up.

Just remember that the PIA doesn't feature in the 2nd calculation

dunstonh

evie2468 said:

Thank you. You are correct but my previous thread concerned clarifying misleading information given by the govt pension service and it concerned carry forward. So thanks to that thread I understand this. This question is different as it concerns how I work out how much I am allowed to put in. Thanks again.

What is misleading?

Someone earning under the annual allowance can pay an amount above their earnings in some scenarios.