Tapered pension contribution

Katosav

Hi,

I’m trying to understand what is permissible as my husband has received a payrise (via a long term incentive award), where he will receive shares that vest over a 3 year period. We are obviously delighted & I’m trying to understand the impact on his pension contributions.

His current arrangement means that his contributions are currently matched by his employer, so he maxes this out & we have been using these figures to plan for retirement in 5 years time.

Whilst this payrise is very welcome I’ve just realised that it will mean he is now over the £260k pa income range & so his total pension contribution will be tapered to a maximum contribution of £10k pa. 

Does this mean that he cannot contribute any more to his pension fund? If that’s the case, what alternative investments are there? (we’ve both max’s out our ISA’s & my pension, as well as back years for his).

also keen not to lose out on his matched contributions.

thanks for any advice

Marcon

Katosav said:

Hi,

I’m trying to understand what is permissible as my husband has received a payrise (via a long term incentive award), where he will receive shares that vest over a 3 year period. We are obviously delighted & I’m trying to understand the impact on his pension contributions.

His current arrangement means that his contributions are currently matched by his employer, so he maxes this out & we have been using these figures to plan for retirement in 5 years time.

Whilst this payrise is very welcome I’ve just realised that it will mean he is now over the £260k pa income range & so his total pension contribution will be tapered to a maximum contribution of £10k pa. 

Does this mean that he cannot contribute any more to his pension fund? If that’s the case, what alternative investments are there? (we’ve both max’s out our ISA’s & my pension, as well as back years for his).

also keen not to lose out on his matched contributions.

thanks for any advice

Some 'problems' are really good to have!

Maybe spend some of the spoils on getting proper financial advice? Could be an excellent investment - nobody here is going to be able to give properly informed comment (although doubtless some will have a go) on the basis of a few lines of information. You've said nothing about your ages, health, family situation (?kids ?mortgage ?IHT planning etc), attitude to risk, other savings you have...they are all key when taking decisions about where, when and how much to invest.

Cobbler_tone

The term ‘first world problem’ springs to mind.
I think financial advice would be my priority.
Good luck.

DRS1

From your post it sounds as if the LTI award is taxed in the year the award is made.  Is that right?  Does it mean that there is no further tax to pay when the award vests?
Is he going to get any awards in subsequent years or is this a one off?
Depending on the answers you may find this is a problem only for this tax year and next year the annual allowance will be back to a more normal level.  In that case maybe he can agree to some juggling of the pension contributions so that whatever is missed this tax year is made up later?  Obviously you'd need to do some number crunching to see if that was even possible.
If not then maybe he has a word with his employer (who presumably ought to be aware of the issue) and see what they propose.  Would they simply pay him the money that would otherwise go to the pension as extra salary?  Would they gross it up to compensate for the missed tax relief?
Or maybe he doesn't want to have such a conversation in case it makes him seem ungrateful for the award.

Katosav

Very much aware, this is a first world problem!

tax will be paid when the shares vest, which is split into 3rds & this award will be given annually.

Husbandbis 50,& looking to retire in 5 years. 

I just didn’t know where to start really but I’ll speak to a financial advisor as suggested!

DRS1

OK so you are going to have the issue over the next 5 years (getting worse each year).  One problem will be that you won't know the value of the relevant part of the award until it vests each year (presumably the shares are publicly quoted?).  It may be that what you end up doing is keep the contributions as they are and just work out the annual allowance charge for the tax return.  You may want to speak to someone from the pension scheme to see if the scheme will pay the charge.

I don't know when the first vesting date is but perhaps there is some scope to front end load the pension contributions (and the employer matching contributions) into this tax year?