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

Barralad77

“We are thinking about a SIPP because USS have said that the pension isn't great”

Can this be true? USS have said that the pension they provide isn’t very good? If so, that’s remarkable….

In USS the AA is calculated as (1/75th of salary x 20) plus whatever is put into the Investment Builder. As your husband’s salary is above the threshold (which is around £72,000) then money will be put into the IB by both your husband and the employer (check what the contribution rates are on the USS website).

There’s a dedicated page on USS where you can download an AA ‘worksheet’ which allows you to do the precise calculation:

https://www.uss.co.uk/for-members/pension-tax/annual-allowance

Cobbler_tone

Unless universities operate differently, USS is SS. I guess they could do.

Dazed_and_C0nfused

owlowlowl said:

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. 

Another useful thing you will need to know to get the answer you want, what is his taxable income going to be for this tax year?

Earning £84,500 and being in USS probably means it's a lot less than that.  You should be able to check his March 2025 and latest P60 to get an idea of the difference between salary and taxable pay.

And does he have any other taxable income?

Cobbler_tone

PS for info. The employee contribution is 6.1% into the DB part.

Barralad77

Try this calculator. All you will need to do is enter the gross salary and the pension contribution (as Cobbler_tone points out, this is 6.1%, make sure to tick the ‘via Salary Sacrifice’ box when you do this). That will give you the annual breakdown of how much tax you are paying (at the various levels - depends whether you’re in Scotland or not). If you know how much he’s contributing to the IB each month (due to him being over the salary threshold for the Investment Builder) then so much the better (there’s a separate box for ‘Salary Sacrifice’) as that will factor in the other money that isn’t subject to income tax/NI. With just 3 or 4 values it will tell you very accurately how much tax you are paying (the tax breakdown is there in small print - just click on it). You can then play around with the Salary Sacrifice value to see how much you would need to put into the IB in order to eliminate the 40% tax bracket (or 42% North of the border).

https://www.thesalarycalculator.co.uk/salary.php

Barralad77

I’ve just run the numbers as follows.
Gross salary - £84,500
Pension Contribution (via SS) - 6.1%
Net annual salary - £56,578
Tax paid - £19,170, of which £11,630 paid at the 40% rate.

If he wants to avoid paying any tax at 40% then an additional ~£2,400 per month would need to be sacrificed to the IB.

His AA at this point would thus be (84,500/75 x 20) + 28,800 > £51,333 but that doesn’t take into consideration the IB contributions made by the employer, which if my maths is correct would be somewhere in the region of £1,800 (approx £12,500 x 0.145), which lifts the AA up to around £53,100 (even if this is a bit out due to rounding and best-guessing, it should still fall short of the £60,000 allowed).

saajan_12

owlowlowl said:

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. 

...

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). 

Just to pick up on a few other points outside of pensions specifically: 

Paid off house plus 350k is huge in savings, that's basically a pension right there! That would have taken pretty good 'adulting' to be disciplined enough to save up. 

Dripping that into your pension and/or general investments is something you can easily do. Many of the big name platforms offer S&S ISAs. You could invest in a broad stock fund, containing 1000s of stocks with some of the money. While stocks can go up or down in the short term, the idea is it'll follow 'the market' and keeps up with inflation. Arguably using cash is more risky because you don't know that the 4% interest or whatever will keep up with inflation, whereas your costs (eg food, bills, holidays etc) will move with inflation. 

The rest could be in a fixed income bond fund - that's somewhere in between cash and stocks, both in returns and in riskiness. As you get closer to retirement, you want the value to be more stable in the short term. Something like a LifeStrategy could do this split for you, or you can just choose x% of your savings in a stock fund and y% in a bond fund. 

LHW99

One other thing asidde from the OP's actual question.

Have you both checked (and read all of) your State Pension forecast?

https://www.gov.uk/check-state-pension

As you have been ill, you maynot (yet) be on target for a full ension - remember the oft quoted "35 years" isn't relevant unless you began working after 2016.

If you are short, and need more than 15 years to make up, it may be worth checking if there are any past years that you could pay for that would increase your forecast. If so, it would be a profitable use for some of the £350k

MarlowMallard

"We are thinking about a SIPP because USS have said that the pension isn't great”

This sounds odd - it's not as good as civil service / NHS, but USS is much better than almost anything in the private sector these days. 

It's hard to give exact numbers as things have changed over the years, but as a rough guess your husband should be looking at USS annual pension of £900 times years worked, plus 3x that as a lump sum, minus any early-retirement penalty (roughly 5% per year early),  plus whatever's in the Investment Builder. 
It's worth registering on the USS Website to get accurate numbers. 

Also note, when you start the pension you can take an additional 3.66x annual pension tax-free lump from the Inv Builder ( the HMRC limit is 6.66x, 
 the USS standard is 3x lump, so you can take the extra 3.66x if the Inv Builder is large enough ).  This has to be taken simultaneous with starting the pension and is usually beneficial to reduce tax later on.   So it's definitely worth getting the Inv Builder up to at least 3.66x  annual pension by retirement age as you pay no tax at all on that.  
(I'm not sure if you can take the 3.66x out of a separate SIPP, that is beyond my knowledge level). 


  
 

grassmarket

Assuming your husband is over 50 - why not book an appointment with PensionWise & go over it all with them? Free, mpartial & backed by govt.
https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise
I found my adviser to be very knowledgeable, helpful & endlessly patient!