I'm embarrassed that I can't work this out - any help gratefully received.

owlowlowl

Me again. I'm so ashamed at my lack of mathematical skill and my lack of understanding. This is just mortifying. But I am still struggling with pensions. 

My husband earns £84,500 a year. We want to maximise the 40% tax relief he would get on his pension by paying the 'extra' allowance into a SIPP each year. 

He has a workplace pension. The statement for this says that in 2024, he used £21,400 of his £60,000 allowance.

How much should he put into a SIPP to maximise the relief he gets down to the threshold, which is £50,271?

Is it a straightforward subtraction, so £84500 (wage) -£21400 (amount already paid) -£50271 (tax threshold) =  £12,829? 
Or is it this minus 40%, so £7697?

Or have I got this completely wrong?

ALSO: is there any point saving more than this in a SIPP rather than a stocks and shares ISA? From the outside, it just looks like deferring tax once you're beneath the 40% threshold, so you either pay the 20% tax now or later? But is there something I'm missing?

I would be SO grateful for help. 

leosayer

Don't be ashamed, it's complicated and take a while to get your head around and there's plenty of time before the end of the tax year.

Some questions:

Is £84,500 his gross salary ie. before any pension contributions?

What type of pension is his workplace pension eg. DB or DC?

Is his employer a large one like NHS, Police, Local Goverment etc?

Does his workplace pension allow contributions to be made by 'salary sacrifice'?

Why do you think you need a SIPP instead of putting more into his workplace pension? 

Linton

Wrong I am afraid. However from the information provided we cannot work out the right answer since the £60K allowance includes both employee and employer contributions. Can you tell us how much he personally paid?

Also did he pay by salary sacrifice? If so is the £84500 net or gross of the pension contribution?

owlowlowl

Is £84,500 his gross salary ie. before any pension contributions?

Yes, gross salary before pensions. Ages probably matter too here - I am 47, he is 52. We are looking into whether we can retire at 62, so a ten and fifteen year window respectively to invest. My pension is absolutely shot because I was very physically unwell for ten years, so I am missing large chunks which is affecting both of our security in retirement. (I'm fine now and back at work and trying to make up for being the drag anchor in the relationship). 

Our house is crap, but it's paid off. We have £350k in savings, in cash ISAs. I recently learned that this is an absolutely RUBBISH way to save, so I am trying to learn about how to do better adulting. 

What type of pension is his workplace pension eg. DB or DC?

It is USS, so it has a DB element and an investment builder element. 

Is his employer a large one like NHS, Police, Local Goverment etc?

It's USS. 

Does his workplace pension allow contributions to be made by 'salary sacrifice'?

We don't know, we are trying to find this out! 

Why do you think you need a SIPP instead of putting more into his workplace pension?

We are thinking about a SIPP because USS have said that the pension isn't great and they keep changing the rules so the amount we get keeps changing. We are worried about them trying to do this again and thinking it might be preferable to have a second pension as a backup plan in the event they decide to try to make us all work til we are 80.

We have been reading about passive investing in global index-linked equities, and wondering if this would be a faster (if riskier) way to get to the amount we need for retirement? (I welcome all thoughts on this, including critical ones saying we are being idiots. We are new to investing and clueless). 

Albermarle

ALSO: is there any point saving more than this in a SIPP rather than a stocks and shares ISA? From the outside, it just looks like deferring tax once you're beneath the 40% threshold, so you either pay the 20% tax now or later? But is there something I'm missing?

Of course only getting 20% tax relief is not as beneficial as getting 40 % tax relief.
However do not forget that you get 25% tax free when you withdraw, and if you have no other taxable income at that time, you get the first £12570 of taxable income without paying tax ( usually until you get your state pension)

owlowlowl

Linton said:

Wrong I am afraid. However from the information provided we cannot work out the right answer since the £60K allowance includes both employee and employer contributions. Can you tell us how much he personally paid?

Also did he pay by salary sacrifice? If so is the £84500 net or gross of the pension contribution?

I'm embarrassed to say we can't work out how much he has paid in. The detail isn't provided in the statement. They give a breakdown for the DC element. There, he put in £2999, and the employer put in £4988. It is really REALLY hard to work out how much he has paid into the DB part and how much they have contributed. The statements are not transparent on this, I am not sure why.

Cobbler_tone

It should be pretty forward to work out if your motivation is purely to avoid 40% tax.
For rounding he needs to put £34k into his pension. I sorted my OH’s USS pension out.
You have the DB fixed percentage, which changed a while ago. You may have 1% going to the IB depending on the position to salary band. Then you work out the balance to IB needed and divide by 12. The advantage of sticking with the IB is that it is via SS. When it comes to accessing it you have options.
The contribution is input as a value and not percentage.

leosayer

I don't know anything about investment choices with USS, hopefully another poster will know. 

In any case, please stop with the negativity. It's unhelpful and frankly wrong considering the situation you find yourself in. Mortgage paid off! £350k in cash! £84,500 salary! Unknown pension benefits. 90% of people in this country would love to be in that position.

Your pension isn't shot. You've still got a lot of time to recover it and you are now going the right way about it. Are you also with USS?

You are not a drag anchor! Marriages are a partnership - you look after each other. Maybe your husband did that before when you were ill and you are doing it now with this research which is the hardest part - getting started.

Whatever USS might do in the future, they can't take away what you have accrued under the current terms up until now.

There is a helpline for USS pension - give them a call they should be able to answer your questions and/or tell you where to find things.

I'd say your next steps are:

- Find out whether USS contributions are via SS

- Find out your current pension arrangements

- Find our your husband's accrued pension entitlements

- Find out the investment choices (funds) available from USS

- Work out how much of that Cash ISA you will need for spending in the next 0-10 years before retirement

-  Start to work out what your income requirement might be in retirement. See the PLSA website for guidance.

Brie

from previous.....
Does his workplace pension allow contributions to be made by 'salary sacrifice'?

We don't know, we are trying to find this out! 

Assuming this means you don't know if there is salary sacrifice at all the easiest way to check is to take his annual salary and divide by 12.  Check if that's the amount of normal pay on his payslip for last month.  If it is there is not salary sacrifice.  If the amount on the payslip is lower then that shows salary sacrifice is being used.  Watch out for other deductions that might affect this like sick pay etc.

leosayer

Brie said:

from previous.....
Does his workplace pension allow contributions to be made by 'salary sacrifice'?

We don't know, we are trying to find this out! 

Assuming this means you don't know if there is salary sacrifice at all the easiest way to check is to take his annual salary and divide by 12.  Check if that's the amount of normal pay on his payslip for last month.  

My previous employer's payslips showed my gross full monthly salary followed by a line showing the SS deduction.

DRS1

He has a workplace pension. The statement for this says that in 2024, he used £21,400 of his £60,000 allowance.

Apart from the point already made about employer contributions (PIA?) isn't 2024 the wrong year? You should be looking at 25/6.  That information may not be available yet and may be of academic interest (even with £35k gross of SIPP contributions this year there is plenty of room in this year's annual allowance for the workplace scheme and if he does go over £60k (eg because of a promotion) then he has probably got ample left over from previous years if he has only been using up £21k pa in those years).