Calculator giving zero DB Input - Can I put all my earnings into a SIPP?

zagfles

We get these threads every week and several people explain the same thing several times over in every thread.
See this thread which is pretty much the same Annual Allowance - SIPP — MoneySavingExpert Forum

DRS1

5)      One answer says “So as an example salary £30k, your LGPS conts £3k, so taxable pay, £27k so £27k is your max GROSS SIPP contribution so £21600 net is the max amount you can pay in and get tax relief.” – I get this, but how do I calculate “LGPS conts” without using the calculator above? Or Are you saying that only MY contribs are counted for tax relief purposes, and not the contribs of my employer towards the same DB pension?

The calculator is only relevant for the Annual Allowance calculation.  Employer contributions are not relevant at all (for a DB scheme anyway)
So YES it is only your contributions which count for tax relief purposes but that assumes all your contributions are relief at source contributions.  The confusing thing is you can contribute in other ways (net pay or salary sacrifice) as well with the result that the contributions come out of the equation before you get to the taxable earnings figure.  The taxable earnings figure is then the cap on what you can contribute and get the tax relief (always remembering that is Gross so you have to reduce the actual payment you make to the SIPP to allow for the tax claimed by the SIPP)

4)      I do not understand why some people are talking about the 60K allowance as this is not applicable when you want to stay within tax-relief limits AND you earn less than 60K.

I don't think you can completely ignore the 60k allowance just because you earn less than 60k because you are in a defined benefit scheme and you have to deduct the pension input amount from the 60k to see what you can contribute without triggering the annual allowance tax charge.  If the PIA was eg £40k then you'd be limited to 20k unless you had annual allowance to carry forward from previous years 

Bobziz

To be fair, it doesn't help when the debate continues around the AA. The answer is simple isn't it, put up to 80% of your taxable earnings into a SIPP. That's it, ignore the AA, ignore 60k, ignore DB PIA calculators, it's all irrelevant to your situation.

zagfles

Bobziz said:

To be fair, it doesn't help when the debate continues around the AA. The answer is simple isn't it, put up to 80% of your taxable earnings into a SIPP. That's it, ignore the AA, ignore 60k, ignore DB PIA calculators, it's all irrelevant to your situation.

It doesn't work. Look at the thread I linked above, when I said exactly that in the first reply. That should have been that, but the thread went on for 3 pages with confusion about PIAs and AA. 

They all go like that, people have read about PIAs for DB schemes being complicated and simply don't believe you when you say low earners can ignore the PIA and just deduct employee conts, ie use taxable income in a net pay/sal sac scheme. 

So the AA needs explaining, it always does, even to people for whom it's irrelavent. Usually several times. 

I do think Secret2ndAccount's post in that thread ought to become a sticky. 

Triumph13

You are indeed exceedingly confused!

The maximum you can contribute is the lower of:
A) Your gross salary, less the contributions you make to the LGPS (and any AVCs); or
B ) £60k (plus any unused allowance brought forward) less your Pension Input Amount for the LGPS scheme (and any AVCs)

In your case it looks very much as though A will be the lower, so you can ignore B.  So if your salary was £33k, but you contributed £3k to the LGPS, the maximum you can put into a SIPP is £30k gross - so you would send £24k to your SIPP provider and they would reclaim £6k from HMRC.

If you still want to know what B will be, your pension input amount for the current tax year is given by the following formula:

Accrued pension @ 5/4/2025  x 16 + Accrued Lump Sum (@5/4/2025 - Accrued Pension @ 5/4/2024 x (1 + Sept 2023 CPI) )x 16 + Accrued Lump Sum @ 5/4/2024

That works out as being 16 x the amount of pension you accrued this year, plus the difference between the Sept 2023 CPI (used for PIA calcs) and the Sept 2024 CPI (used for LGPS annual uprating) times the opening value of your accrued pension (16 x pension + lump sum)


ETA:
Oops, I missed that there was a page 2 pointing to threads where this had all been addressed.  Again.

LarryCiantapuffi

Thanks everyone for your answers. 

I followed the trail and all the answers were found in the link provided with title "Interaction of tax relief and annual allowance" by M&G wealth (sorry, still unable to paste links here)

I believe, if I understand this correctly now, that there is an error in the page, under "3. Doug - active member of a Defined Benefits scheme" . 

1. Initial premise: Doug is an active member of his employer’s defined benefit pension scheme. Doug pays a 3% employee contribution based on his pensionable salary of £37,500.
2. Tax relief section: This means Doug already pays £1,125 to the Defined Benefits scheme therefore, to be eligible for tax relief, he can only pay up to a maximum of (£57,500 – £1,725) £55,775 gross to a personal pension plan.

Here 1125 is 3% of 37500, got it.

Then out of nowhere it talks about 57500 (where did this figure come from?!) and 1725 (which is 3% of 57500). The remains of the article assume his salary was 57500, whereas it was stated as 37500.

Either this is indeed an error (and it is unbelievable that there is an error in a site with the sole purpose of explaining such calculations 🤦‍♂️), OR, I have not understood the calculations 😔. 

Thoughts?

Sarahspangles

LarryCiantapuffi said:

Thanks everyone for your answers. 

I followed the trail and all the answers were found in the link provided with title "Interaction of tax relief and annual allowance" by M&G wealth (sorry, still unable to paste links here)

I believe, if I understand this correctly now, that there is an error in the page, under "3. Doug - active member of a Defined Benefits scheme" . 

1. Initial premise: Doug is an active member of his employer’s defined benefit pension scheme. Doug pays a 3% employee contribution based on his pensionable salary of £37,500.
2. Tax relief section: This means Doug already pays £1,125 to the Defined Benefits scheme therefore, to be eligible for tax relief, he can only pay up to a maximum of (£57,500 – £1,725) £55,775 gross to a personal pension plan.

Here 1125 is 3% of 37500, got it.

Then out of nowhere it talks about 57500 (where did this figure come from?!) and 1725 (which is 3% of 57500). The remains of the article assume his salary was 57500, whereas it was stated as 37500.

Either this is indeed an error (and it is unbelievable that there is an error in a site with the sole purpose of explaining such calculations 🤦‍♂️), OR, I have not understood the calculations 😔. 

Thoughts?

The Annual Allowance increased from £40,000 pa to £60,000 pa a couple of years ago. Someone appears to have tried to update the example to illustrate what happens when someone’s income is slightly below the Annual Allowance i.e. that it’s the lower of the two that is the limit. They didn’t get it right.

AlanP_2

OP - Whilst AA is not relevant to your situation for future reference the best place for LGPS related calculations is https://www.lgpsmember.org/help-and-support/tools-and-calculators/annual-allowance-quick-check-tool/

In an earlier post the question was posed to you about why a SIPP and not LGPS AVCs and I don't think you answered. There are pros and cons for both options but at least consider them both.

LarryCiantapuffi

AlanP_2 said:

OP - Whilst AA is not relevant to your situation for future reference the best place for [link]

In an earlier post the question was posed to you about why a SIPP and not LGPS AVCs and I don't think you answered. There are pros and cons for both options but at least consider them both.

Thanks for the calculator. This requires some details I do not have as the LGPS administrator messed up my statements and they cannot get me such details. Anyway, as I said in my last post, I've got everything I needed from the site I quoted, thank you.

Re not answering the AVC v SIPP comment, thanks but AVCs are not an option for me, and this post was not about investment advice, it was very specifically about SIPPs, so I didn't want to diverge into an investment advice discussion. 

LarryCiantapuffi

Sarahspangles said:

 They didn’t get it right.

Shocking! Thanks for checking.