Maximum allowable contribution to pension schemes in a tax year

What_time_is_it

I’ve asked similar questions here previously and also had (contradictory!) responses from a pension provider, so I want to make absolutely sure.

My partner wants to maximise her pensions contributions and minimise the tax and NI costs. She is employed full time and has quite a large amount in savings so she wants to “max out” on her pension.

She has an annual salary of around £28,000. From this she now salary sacrifices into 2 pensions schemes (around £350 a month in total) and also salary sacrifices into order to purchase additional annual leave. This brings her taxable salary down to National Minimum Wage.

One of the pension schemes (DC) allows for additional contributions to be made directly (i.e.directly from her bank account rather than from salary) and she wants to maximise this. But what is the limit each year? I think she is limited to the total of her salary (taxable pay) in that particular tax year. Is that right? And…

Can she “carry forward” any “unused” salary from previous tax years? Or does this only apply to people
earning over £60k? I’ve only ever seen reference to carrying forward previous years in relations to amounts over the £60k annual allowances, but the lady we spoke to at the pension company seemed to suggest that this could be done. I am not so sure.

2. At what point does a pension contribution count as being within a particular tax year? She made (non salary sacrifice) contributions from her salary until recently. In March 2024 she had a deduction (not sacrifice) in her salary of £1,600 which was topped up to £2,000 with tax relief. However, this was not “paid” into her pension pot until 18th April 2024. Which tax year does that count in?

Thanks!

Albermarle

What_time_is_it said:

I’ve asked similar questions here previously and also had (contradictory!) responses from a pension provider, so I want to make absolutely sure.

My partner wants to maximise her pensions contributions and minimise the tax and NI costs. She is employed full time and has quite a large amount in savings so she wants to “max out” on her pension.

She has an annual salary of around £28,000. From this she now salary sacrifices into 2 pensions schemes (around £350 a month in total) and also salary sacrifices into order to purchase additional annual leave. This brings her taxable salary down to National Minimum Wage.

One of the pension schemes (DC) allows for additional contributions to be made directly (i.e.directly from her bank account rather than from salary) and she wants to maximise this. But what is the limit each year? I think she is limited to the total of her salary (taxable pay) in that particular tax year. Is that right? And…Yes that is right

Can she “carry forward” any “unused” salary from previous tax years? No Or does this only apply to people
earning over £60k? I’ve only ever seen reference to carrying forward previous years in relations to amounts over the £60k annual allowances,Correct  but the lady we spoke to at the pension company seemed to suggest that this could be done. She was wrong I am not so sure.

2. At what point does a pension contribution count as being within a particular tax year? She made (non salary sacrifice) contributions from her salary until recently. In March 2024 she had a deduction (not sacrifice) in her salary of £1,600 which was topped up to £2,000 with tax relief. However, this was not “paid” into her pension pot until 18th April 2024. Which tax year does that count in? 23/24

Thanks!

In taxable income terms she only earns £28K minus her salary sacrifice.
She can then contribute 80% of that taxable income direct to a pension, where they will add basic rate tax relief.

Linton

In your wife's circumstances there are 3 limits to how much she can contribute into into a pension in a tax year and receive tax relief, each must be satisfied.

1) As she is on salary sacrifice she cannot put so much into her SS pension that what remains is less than minimum wage.  Note that SS is counted as an employer contribution and her reduced salary is what matters for understanding the limits.
2) She  personally cannot make gross pension contributions totalling more than her earned income.  There is no carry over from previous years.
3) All contributions to her pensions, including both personal and employers, cannot exceed the pension Annual Allowance which is currently £60K.  There is conditional carry over from previous years.  

Note that there are different rules for DB pensions for Annual Allowance.

What_time_is_it

Thanks @Albermarle
i think that makes sense and is more or less aligned with what I thought.
to clarify, you think that the £1,600 she had deducted from her March 2024 salary that wasn’t actually paid into the pension scheme until 18th April 2024 counts as a contribution in 23/24 and not in 24/25? So the cut off is applied to when the amount was deducted from her salary and NOT when her employer paid it to the pensions company?

What_time_is_it

Thanks @Linton
That is very clear. I get very confused with the Annual Allowance and how it relates to the fact that one cannot contribute more than one’s annual salary into pensions each year.

Albermarle

What_time_is_it said:

Thanks @Albermarle
i think that makes sense and is more or less aligned with what I thought.
to clarify, you think that the £1,600 she had deducted from her March 2024 salary that wasn’t actually paid into the pension scheme until 18th April 2024 counts as a contribution in 23/24 and not in 24/25? So the cut off is applied to when the amount was deducted from her salary and NOT when her employer paid it to the pensions company?

If you make a personal contribution in March and the tax relief arrives in April, it counts as a March contribution.

If your make a contribution from March salary but your employer does not send the money to the pension provider until after April 5th, I think it goes into the next tax year, but not 100% sure.

zagfles

What_time_is_it said:

I’ve asked similar questions here previously and also had (contradictory!) responses from a pension provider, so I want to make absolutely sure.

My partner wants to maximise her pensions contributions and minimise the tax and NI costs. She is employed full time and has quite a large amount in savings so she wants to “max out” on her pension.

She has an annual salary of around £28,000. From this she now salary sacrifices into 2 pensions schemes (around £350 a month in total) and also salary sacrifices into order to purchase additional annual leave. This brings her taxable salary down to National Minimum Wage.

One of the pension schemes (DC) allows for additional contributions to be made directly (i.e.directly from her bank account rather than from salary) and she wants to maximise this. But what is the limit each year? I think she is limited to the total of her salary (taxable pay) in that particular tax year. Is that right? And…

Can she “carry forward” any “unused” salary from previous tax years? Or does this only apply to people
earning over £60k? I’ve only ever seen reference to carrying forward previous years in relations to amounts over the £60k annual allowances, but the lady we spoke to at the pension company seemed to suggest that this could be done. I am not so sure.

2. At what point does a pension contribution count as being within a particular tax year? She made (non salary sacrifice) contributions from her salary until recently. In March 2024 she had a deduction (not sacrifice) in her salary of £1,600 which was topped up to £2,000 with tax relief. However, this was not “paid” into her pension pot until 18th April 2024. Which tax year does that count in?

Thanks!

So this must be a RAS (relief at source) contribution, ie 1600 deducted from after tax pay with the pension company claiming the tax relief. This will count in the year the net contribution is paid, so 2024/25. See PTM041000 - Contributions: essential principles - HMRC internal manual - GOV.UK