Hybrid pension (USS), post VR payment, working out payments into SIPP this tax year - help!

bluebirdy

Hi all,

I've had some advice on this but I just need to cross-reference to be sure I understand.

Here's the situation/what I think I can do:

I took my (hybrid DB/DC - USS) pension last autumn, and took voluntary redundancy at the same time. I worked/earned half the year and - rounded for sake of ease/privacy - let's just say my earnings this tax year will be £30k.

The taxable part of the VR payment was paid as an 'employer AVC' into the DC part of my pension.

The total pension input amount is - let's say - £25k - and this includes the calculated DB part and a mix of my/employers contributions, as well as this additional VR employer contribution.

My *actual* contributions, deducted from salary before tax, were (again, let's call it) £2400 this year

Now, I'd like to add some money this tax year to a SIPP. I've been advised that employer contributions do not count for the purposes of this and I'm nowhere near the £60k limit.

The actual question: Is the correct calculation for what I am able to pay into a SIPP (this tax year only - I understand that if I don't earn anything next year it will be £2880):

a. £30,000 (my earnings) - £2400 (raw contribution) = £27,600

b. £30,000 - £3000 (my contributions grossed up) = £27,000

c./d. One of the above but with the SIPP contribution amount also adjusted downwards to anticipate the govt tax relief - eg. £27,000 x 0.8 = £21,600

e. Some other figure/calculation and I need to go back to trying to understand this whole nest of worms to separate out employer/employee contributions to the DB/DC part...?

Thank you in advance (I have actually asked on the HMRC forum but given the time of year I don't expect they'll answer before April...)
 

bluebirdy

Just giving this a little bump for any evening experts.😊

Neale_C

Hi, I think you contradict yourself a little. You say that £2,400 was deducted from your salary before tax, and you also say that £2,400 was grossed up to £3,000. It can only be one of the two.

If the pension contributions were deducted from your salary before tax, then £2,400 is the gross contribution, and so calculation a) is correct.

If your contributions were deducted from your pay after tax, and then grossed up to £3,00 by the pension scheme, it would be calculation b). 

With this being USS, the contributions are taken from your pay before tax, so it would be a)

The USS contribution rate for 2024/25 is 6.1%. If all of your earnings were pensionable, and if I have understood your question correctly, the remaining amount you can add to the a pension will be 93.9% of your earnings.

If adding this amount to a personal pension, you will only pay in 80% of this amount, and the remaining 20% will be claimed from HMRC by the pension provider.

Therefore, based on what you have said, you only need to worry about this if you are paying in c. £22,500 (net) into the pension.

Personal contributions to pensions are limited by a) the annual allowance (which you say is not relevant) and b) 100% of your relevant UK earnings. From what you have said, it sounds like b) will be the limiting factor.

As you have taken benefits from the USS, you also need to be aware of tax free cash recycling rules. In my experiences these are rarely (if ever?) applied by HMRC, but it's worth keeping in mind.

You said you have taken advice, so I would suggest going back to your adviser if you are unsure about any of this.

Dazed_and_C0nfused

What does your P45 show your taxable earnings to when you ceased employment were?

bluebirdy

Dazed_and_C0nfused said:

What does your P45 show your taxable earnings to when you ceased employment were?

Hi, that’s the £30k in the above calculation. It is not actually this (I’ve just rounded the figure for privacy and ease of working out the calculation) but it is very close to this!

bluebirdy

Hi @Neale_C

Thanks for your correction - yes it is the first one I think! 

I’m not innumerate but I’ve found myself completely bamboozled by pension tax terminology. I have had some informal guidance rather than official IFA advice - the issue is that the money involved is not worth it for an IFA to advise on this issue and perhaps I need accountancy/tax advice on this - and as the sums are small and I’m fairly sure if I eg limit payments into a SIPP to under £20k this year, it will be ok, I think I’ll probably just go with that.

Am I right that if I were to go over the limit, the consequences are (only) paying back the tax relief at my marginal rate? 

The amount I’d contribute will be less than 30% of tax free cash so I *think* I’ll be ok on the recycling issue.