Helping friend with pension

Albermarle

Skibunny40 said:

Okay, my understanding was wrong - glad I asked!

So if she earns £60k this tax year (& pays £10k pension contributions through employers, no idea in reality , just picked an easy hypothetical figure, assume same for past 3 tax years) she could pay in up to £150k this tax year?

No you are still misunderstanding.
if she earns £60k this tax year the maximum she can add to a pension is £60k gross ( so including tax relief)
So if she added £10k via her employer ( probably taken before tax ) then she could add £40k to a Sipp/ personal pension and the provider would add £10k basic rate tax relief)

QrizB

Skibunny40 said:

So if she earns £60k this tax year (& pays £10k pension contributions through employers, no idea in reality , just picked an easy hypothetical figure, assume same for past 3 tax years) she could pay in up to £150k this tax year?

No.

She can't contribute any more than she earns this tax year.

Assuming you've told is everything that's relevant:

If she earns £60k, and is already contributing £10k to her workplace pension, she can contribute another £50k gross (£40k net) to a pension scheme. It'll take three years to put all £100k into her pension.

If she was earning £135k, then (allowing for her £10k already paid) she could pay £125k gross (£100k net) into a pension and contribute her entire inheritance in a single year.

MallyGirl

Skibunny40 said:

Skibunny40 said:

Okay, my understanding was wrong - glad I asked!

So if she earns £60k this tax year (& pays £10k pension contributions through employers, no idea in reality , just picked an easy hypothetical figure, assume same for past 3 tax years) she could pay in up to £150k this tax year?

No, I'm still wrong!

She could only pay in up to £50k couldn't she?

Yes £50k gross so she only puts in £40k. She will also benefit by paying a bit less high rate tax

Skibunny40

Albermarle said:

Skibunny40 said:

Okay, my understanding was wrong - glad I asked!

So if she earns £60k this tax year (& pays £10k pension contributions through employers, no idea in reality , just picked an easy hypothetical figure, assume same for past 3 tax years) she could pay in up to £150k this tax year?

No you are still misunderstanding.
if she earns £60k this tax year the maximum she can add to a pension is £60k gross ( so including tax relief)
So if she added £10k via her employer ( probably taken before tax ) then she could add £40k to a Sipp/ personal pension and the provider would add £10k basic rate tax relief)

Really appreciate this explanation - think I finally get it!

Skibunny40

Thanks so much to everyone for bearing with me until I finally got it!!

QrizB

Despite all this, if she doesn't want to spend the inheritance immediately on a house / car / cruise / wild weekend in Vegas, but intends to save it for her retirement, then paying it into her pension is still a good idea.

Dazed_and_C0nfused

MallyGirl said:

Skibunny40 said:

Skibunny40 said:

Okay, my understanding was wrong - glad I asked!

So if she earns £60k this tax year (& pays £10k pension contributions through employers, no idea in reality , just picked an easy hypothetical figure, assume same for past 3 tax years) she could pay in up to £150k this tax year?

No, I'm still wrong!

She could only pay in up to £50k couldn't she?

Yes £50k gross so she only puts in £41.67k and it gets the 20% tax added. She will also benefit by paying a bit less high rate tax

Not sure I understand your figures?

It is 25% that gets added (which is 20% of the gross) so to end up with £50k within the pension you need to hand over £40k.

dunstonh

With her salary, her employer contributions can use carry forward.  Personal/employee contributions cannot.

squirrelpie

QrizB said:

If she was earning £135k, then (allowing for her £10k already paid) she could pay £125k gross (£100k net) into a pension and contribute her entire inheritance in a single year.

She can't if it's a newly-opened SIPP as is being discussed. Her membership of the pension scheme must have existed at the time she is theoretically contributing for.

QrizB

squirrelpie said:

QrizB said:

If she was earning £135k, then (allowing for her £10k already paid) she could pay £125k gross (£100k net) into a pension and contribute her entire inheritance in a single year.

She can't if it's a newly-opened SIPP as is being discussed. Her membership of the pension scheme must have existed at the time she is theoretically contributing for.

As I understand it she needs to have been a member of *a* pension scheme, not necessarily the one she's paying into. Her workplace pension will qualify.