Help needed - max amount I can put into pension

ijholdie

I will very shortly be receiving an inheritance (house + funds), and I would like to put as much of this as I can into my company pension. I could really do with some help in terms of calculating how much I can put in in this tax year (Apr 24 - Apr 25).

I am 56 years old, working full time for a company (higher income tax payer). I have a defined contributions company pension in which I contribute 25% of my salary, and my company contributes 10% - via salary sacrifice (I think!). I also have a final salary defined benefit pension from my last company, and an additional voluntary contribution (AVC) from the old company. I left the old company in 2012 and deferred the DB pension (not paid anything into DB pension since 2012). I have also not paid anything into the old AVC, but it is still live.

I understand the annual allowance for pension payments is £60,000 for April 24-Apr 25, but that I can also used unused allowance from the 3 previous tax years (Allowance for Apr 23 - Apr 24 is £60,000, Allowance for Apr 22-Apr 23 is £40,000, and allowance for Apr 21 - Apr 22 is £40,000). In theory giving me £200,000 of allowance available this year.

I'm conscious that I only have a couple of months left before this tax year ends, and I am keen to put in as much as I can as a one of payment into my existing live DC company pension. How do I calculate what the maximum amount I put in for this tax year? (In particular, how do I work out how/if my old deferred DB pension and AVC affect how much I can add as a one off payment this year?).


Many thanks in advance for any help/advice

Dazed_and_C0nfused

ijholdie said:

I will very shortly be receiving an inheritance (house + funds), and I would like to put as much of this as I can into my company pension. I could really do with some help in terms of calculating how much I can put in in this tax year (Apr 24 - Apr 25).

I am 56 years old, working full time for a company (higher income tax payer). I have a defined contributions company pension in which I contribute 25% of my salary, and my company contributes 10% - via salary sacrifice (I think!). I also have a final salary defined benefit pension from my last company, and an additional voluntary contribution (AVC) from the old company. I left the old company in 2012 and deferred the DB pension (not paid anything into DB pension since 2012). I have also not paid anything into the old AVC, but it is still live.

I understand the annual allowance for pension payments is £60,000 for April 24-Apr 25, but that I can also used unused allowance from the 3 previous tax years (Allowance for Apr 23 - Apr 24 is £60,000, Allowance for Apr 22-Apr 23 is £40,000, and allowance for Apr 21 - Apr 22 is £40,000). In theory giving me £200,000 of allowance available this year.

I'm conscious that I only have a couple of months left before this tax year ends, and I am keen to put in as much as I can as a one of payment into my existing live DC company pension. How do I calculate what the maximum amount I put in for this tax year? (In particular, how do I work out how/if my old deferred DB pension and AVC affect how much I can add as a one off payment this year?).

Many thanks in advance for any help/advice

Details of your taxable earnings (not your salary) would be a good place to start.

The amount you would expect to see on your P60.  And do you have any company benefits like medical insurance or a company car?

AlanP_2

The older deferred DB and associated AVC can be ignored BTW as you are not contributing to them.

Albermarle

You are limited by your gross taxable earnings for this year from your employment.
The Annual allowance may or may not come into play depending on how much you get paid.

daveshep26

Albermarle said:

You are limited by your gross taxable earnings for this year from your employment.
The Annual allowance may or may not come into play depending on how much you get paid.

As indicated, yr taxable earnings limit may not give scope for paying in as much as initially hoped, but (OP -You may already have realized yourself) no reason why you can't maximise ASAP for 2024-25 and then again the same shortly after for another tax year (25/26) (which is really on the very near horizon in pension timing terms)

ijholdie

Thanks for the replies, but I am a little confused, so may need a bit more help if you can..

So a bit more info from me; I looked at my previous P60's, under the pay and income tax details (hope that is right), and the total pay (gross) for the past 3 years has been more than the annual allowance for those years. So I thought the limiting factor would be the annual allowance, but it sounds like the maximum I can put into my pension is limited by my total pay gross for this tax year (I thought I could put in more than my total gross pay for this year by rolling up unused allowances from previous 3 years?. Perhaps if I give an example, it might be easier....





In the example above (which is not too different to my scenario), what would be the maximum one off payment you could make to the DC pension in this tax year, and why.

PootleF

You are confusing two things I think.
- You can use your Annual Allowance (the max you can contribute to a pension before tax) from the current year and three years prior
- The maximum you can contribute to your pension in any one year is limited to your total gross earnings that year. You can’t use prior year earnings. Though obviously you could split over this tax year and next, subject to Annual Allowance limits. 

PootleF

So in your example you could pay up to £90k and use annual allowances in the order:
-£30k remaining in current year
-£25k from 21–22
-£25k from 22-23
-£10k from 23-24, leaving £30k to carry forward. 

Have a think about whether it is really worth using all of this in 24-25. You won’t pay tax on the bottom part of this income because of personal allowance, but are using up AA you could have saved for next year and will be taxed as you take your pension. So it may make sense to also use ISAs and save more pension contributions for next tax year - depending on the amounts involved 

ijholdie

@PootleF many thanks, I really appreciate your reply. Can I ask a couple more questions...

1. Is the order in which I use the annual allowance/carryover important ie. do I have to use ALL of the allowance from the current tax year first, and then use up the carryover starting with the oldest carryover year (21-22)?

2. In the example if I did pay £90K this year, could I then next tax year (Apr 25 - Apr 26) Roll over the unused allowance for Apr23 to Apr 24 (£10K)?

3. If I did pay £90K to my company pension provider this tax year as a one off, could I then claim 40% of this £90K (£36K) back, by filling out a Tax return, or is is not that simple?


Regarding my situation, I am not planning on taking my pension for another few years yet, just trying to pay as much of my inheritance into the pension as quickly as possible to take advantage of the tax relief I thought I would get (40%) on the payments, but maybe its not that simple?

TheSpectator

ijholdie said:

@PootleF many thanks, I really appreciate your reply. Can I ask a couple more questions...

1. Is the order in which I use the annual allowance/carryover important ie. do I have to use ALL of the allowance from the current tax year first, and then use up the carryover starting with the oldest carryover year (21-22)?

2. In the example if I did pay £90K this year, could I then next tax year (Apr 25 - Apr 26) Roll over the unused allowance for Apr23 to Apr 24 (£10K)?

3. If I did pay £90K to my company pension provider this tax year as a one off, could I then claim 40% of this £90K (£36K) back, by filling out a Tax return, or is is not that simple?


Regarding my situation, I am not planning on taking my pension for another few years yet, just trying to pay as much of my inheritance into the pension as quickly as possible to take advantage of the tax relief I thought I would get (40%) on the payments, but maybe its not that simple?

You are not going to get 40% tax relief on £90k income if you did not pay 40% tax on all that income....which you won't have.

Maybe you should put some of that inheritance for some proper advice.

ijholdie

TheSpectator said:

You are not going to get 40% tax relief on £90k income if you did not pay 40% tax on all that income....which you won't have.

@TheSpectator can you explain/elaborate please? I am a PAYE higher rate income tax payer, are you saying that I only get the 40% relief above £50K threshold, or is it more complex than that?