Put £20k in additional nhs pension or SIPP?

Dazed_and_C0nfused

Lowtrawler said:

PoGee said:

Lowtrawler said:

QrizB said:

Lowtrawler said:

You're forgetting that the £20k being paid into the NHS scheme will get tax relief. Assuming they will get tax relief at 20%, the £20k cost is only £16k after tax 

That's an unconventional reading of the OPs statement:

PoGee said:

If I buy £1250 additional nhs pension, it's a lump sum of £20k.

If he was being asked for £16k, he'd have said so?

Maybe the OP can clarify?

The NHS Additional Pension payments are always quoted gross. Most people choose to make the payment over time rather than as a lump sum but both options exist. It is why I asked the poster if they were sure they would have enough taxable income this year to make the £20k lump sum payment and obtain tax relief.

On speaking to many people in the NHS, most don't understand they get tax relief on the Additional Pension payments and so end up making a poorly informed choice.

Thanks for replies. I put into the calculator '£1250' and the result was - lump sum cost £20k. I'm not sure what you mean by - making sure I have enough taxable income to make the £20k lump sum and obtain tax relief.

I'm part time with my pro rata salary being around £28k, rental income 1st rental £10k, 2nd rental £5k - all before tax. I've sold the 2nd rental so have cash sitting in a low interest savings account. I get £1k in interest from cash saved previously + share dividends, so conscious of the new cash from the sold rental pushing me over the £1k interest limit.

Can you explain what 'enough taxable income means'? This is going over my head a wee bit. 

As LHW99 says, Rental Income will not enable you to get tax relief on the pension payment and so it is only your NHS Salary that you should consider.

On a salary of £28k, you are probably contributing around £2k into the pension scheme already and, with your personal allowance of £12,570, you will only get tax relief on £28k less £2k less £12,570 = £13,430
You will need to make adjustment to these numbers based on what you know you are paying into the pension scheme and your actual personal allowance.

What this means is you do not have enough taxable income to get full tax relief on making a £20k lump sum payment. Based on my rough numbers above, you would only get tax relief on £13,430 of the payment. Paying into the NHS additional pension only makes sense if you can get the full tax relief.

What you can consider doing is to make the payment by monthly salary deduction over 2 years. This way, you will get automatic tax relief through PAYE. In essence, you would make a £10k payment each year (£833.33 per month) but it would only cost you £8k (£666.67 per month) as you would get £2k tax relief through PAYE.

Another option is to pay a lump sum of £12k this year (subject to you confirming you have £12k of taxed income per my calc above) and make a new application next year to pay in the remaining £8k. That would mean changing this years calc to add £750 of Additional Pension and doing £500 next year. You would then claim back £2,400 tax on your 2025/26 tax return and £1,600 on your 2026/27 return.

That is completely wrong.

The op has said they have £28k earnings, say £26k after normal NHS net pay contributions.

Plus it seems like £10.5k profit from rental income.

From what has been posted they are able to pay £20k to buy extra pension in the NHS scheme.

That will work in a similar way to the the Personal Allowance in reducing the amount of earnings liable to tax, leaving £6k earnings to use against the Personal Allowance.  The remaining Personal Allowance can be used by the rental profit.

The earnings are what enables the op to make the £20k contribution but once paid the contribution is factored into the calculation for that year as a whole.

Lowtrawler

LHW99 said:

PoGee said:

LHW99 said:

Also, do you mean your part-time salary is £28k, or your annual pro-rata salary? As Lowtrawler says it's your actual gross salary which you receive that counts.

Full time is around £47k and I work 3 days a week so gross pay is £28k

So £28k is the number that matters. You need to take away the amount already being paid into the pension, and that is the gross amount you could pay in from savings. AFAIK you don't have to deduct the personal allowance.

For the Additional Pension, you do have to deduct the personal allowance in order to get tax relief. If you paid £26k into the additional Pension (after the £2k already paid into the pension) it would be set against the tax paid on that £26k which would only be £2,686 because of the personal allowance. It means if you paid anything over £13,430 into the Additional Pension, the tax relief would remain capped at £2,686.

This is different from paying into a personal pension where, so long as you pay in less than the Gross pay, less 20%, you would get full tax relief.

PoGee

Full time wage is £51k not £48k. so part time wage just under £31k. I don't think I'll pay in the £20k lump sum as I'll not get this portion of pension till age 67, when (hopefully) my state pension kicks in anyway. 

Dazed_and_C0nfused

Lowtrawler said:

LHW99 said:

PoGee said:

LHW99 said:

Also, do you mean your part-time salary is £28k, or your annual pro-rata salary? As Lowtrawler says it's your actual gross salary which you receive that counts.

Full time is around £47k and I work 3 days a week so gross pay is £28k

So £28k is the number that matters. You need to take away the amount already being paid into the pension, and that is the gross amount you could pay in from savings. AFAIK you don't have to deduct the personal allowance.

For the Additional Pension, you do have to deduct the personal allowance in order to get tax relief. If you paid £26k into the additional Pension (after the £2k already paid into the pension) it would be set against the tax paid on that £26k which would only be £2,686 because of the personal allowance. It means if you paid anything over £13,430 into the Additional Pension, the tax relief would remain capped at £2,686.

This is different from paying into a personal pension where, so long as you pay in less than the Gross pay, less 20%, you would get full tax relief.

You are overlooking two quite important things though.

Firstly HMRC don't calculate your tax liability on individual income sources, it's the total picture they look ta once the tax year has ended and the year is reviewed.

Secondly you can allocate the Personal Allowance in whichever way gives the lowest liability.  So you could allocate £10,500 to the rental profit and just have £2,070 against the earnings.

Somebody

TL,DR  Has anyone mentioned the annual contribution limit here is not straight forward as it's not a case of totalling the employers and employees contributions into the pension scheme?  Rather the Pension Input Amount is relevant for defined benefit schemes,  which needs to be taken into account when calculating any headroom for any additional pension contributions.  Good luck with obtaining the PIA before the tax year end to enable the headroom calculation!