SIPP, Sal Sac and AI confusion

Montmorencyterrier

This post may be a bit long, but I hope it is interesting.

I am trying to work out how much I can add to my SIPP this tax year.  My situation is a little messy, but I thought I understood the rules.  Partly to check and partly as an experiment, I asked ChaptGPT for its views.  I then put the same data into Co-Pilot.  These two LLMs gave me rather different answers. I then fed them the other’s output and asked which was correct.  Both gave plausible arguments for why they were correct and neither backed down.  I did seek a further view from Claude, but it could not cope.

I would be very interested to have human expert views, but also to illustrate to people – as one of these LLMs must be wrong – how dangerous it is to rely on them for financial advice.  If I wrongly followed either of them, I would either have exceeded my annual allowance or have contributed too little to my SIPP – both incurring more tax than necessary.

My situation: I retired some time ago and have a pension in payment (and an existing SIPP - important for any carry-forward).  I was enticed back to work on a 7 month contract which included rejoining a hybrid DB/DC pension scheme which allowed salary sacrifice.

The numbers:

·       PAYE and self-employed income: £61,909.66

·       Salary sacrificed: £24,846.77

·       Employer pension contribution: £7,721.29

·       Employee pension contribution: £3,246.42

·       Pension income £80,099.00

·       Interest income: £38,509.34

 Given the same prompts, ChatGPT told me I could contribute £33,816.47 gross to my SIPP, while Copilot told me I could contribute £24,187 gross.  Both gave step-by-step reasoning for their outputs.  I challenged both with the other’s responses and they outlined why they were still right.

I then posed the issue of carry-forward as I did not use my full allowance last year, and, again, both gave wildly different answers – but maybe that is a story for another day.

I would be interested to know which AI is correct in my case, and suggest that anyone who uses one does so with scepticism.

Thanks

NoMore

The most important question is what type of pension you have in payment ? If it’s a dc pension and you’ve took taxable income then you have triggered the MPAA and now restricted to 10k per year gross and no use of carry forward. 

Dazed_and_C0nfused

Montmorencyterrier said:

This post may be a bit long, but I hope it is interesting.

I am trying to work out how much I can add to my SIPP this tax year.  My situation is a little messy, but I thought I understood the rules.  Partly to check and partly as an experiment, I asked ChaptGPT for its views.  I then put the same data into Co-Pilot.  These two LLMs gave me rather different answers. I then fed them the other’s output and asked which was correct.  Both gave plausible arguments for why they were correct and neither backed down.  I did seek a further view from Claude, but it could not cope.

I would be very interested to have human expert views, but also to illustrate to people – as one of these LLMs must be wrong – how dangerous it is to rely on them for financial advice.  If I wrongly followed either of them, I would either have exceeded my annual allowance or have contributed too little to my SIPP – both incurring more tax than necessary.

My situation: I retired some time ago and have a pension in payment (and an existing SIPP - important for any carry-forward).  I was enticed back to work on a 7 month contract which included rejoining a hybrid DB/DC pension scheme which allowed salary sacrifice.

The numbers:

·       PAYE and self-employed income: £61,909.66

·       Salary sacrificed: £24,846.77

·       Employer pension contribution: £7,721.29

·       Employee pension contribution: £3,246.42

·       Pension income £80,099.00

·       Interest income: £38,509.34

 Given the same prompts, ChatGPT told me I could contribute £33,816.47 gross to my SIPP, while Copilot told me I could contribute £24,187 gross.  Both gave step-by-step reasoning for their outputs.  I challenged both with the other’s responses and they outlined why they were still right.

I then posed the issue of carry-forward as I did not use my full allowance last year, and, again, both gave wildly different answers – but maybe that is a story for another day.

I would be interested to know which AI is correct in my case, and suggest that anyone who uses one does so with scepticism.

Thanks

AI, or a human, cannot answer correctly without all the salient facts.

Montmorencyterrier

Thanks.  MPAA not triggered and I would be able to use carry forward if necessary. the LLMs were aware that I had not triggered MPAA.

Linton

Montmorencyterrier said:

This post may be a bit long, but I hope it is interesting.

I am trying to work out how much I can add to my SIPP this tax year.  My situation is a little messy, but I thought I understood the rules.  Partly to check and partly as an experiment, I asked ChaptGPT for its views.  I then put the same data into Co-Pilot.  These two LLMs gave me rather different answers. I then fed them the other’s output and asked which was correct.  Both gave plausible arguments for why they were correct and neither backed down.  I did seek a further view from Claude, but it could not cope.

I would be very interested to have human expert views, but also to illustrate to people – as one of these LLMs must be wrong – how dangerous it is to rely on them for financial advice.  If I wrongly followed either of them, I would either have exceeded my annual allowance or have contributed too little to my SIPP – both incurring more tax than necessary.

My situation: I retired some time ago and have a pension in payment (and an existing SIPP - important for any carry-forward).  I was enticed back to work on a 7 month contract which included rejoining a hybrid DB/DC pension scheme which allowed salary sacrifice.

The numbers:

·       PAYE and self-employed income: £61,909.66

·       Salary sacrificed: £24,846.77

·       Employer pension contribution: £7,721.29

·       Employee pension contribution: £3,246.42

·       Pension income £80,099.00

·       Interest income: £38,509.34

 Given the same prompts, ChatGPT told me I could contribute £33,816.47 gross to my SIPP, while Copilot told me I could contribute £24,187 gross.  Both gave step-by-step reasoning for their outputs.  I challenged both with the other’s responses and they outlined why they were still right.

I then posed the issue of carry-forward as I did not use my full allowance last year, and, again, both gave wildly different answers – but maybe that is a story for another day.

I would be interested to know which AI is correct in my case, and suggest that anyone who uses one does so with scepticism.

Thanks

I am somewhat confused by your figures...

In particular:
1) is the employee contribution included within the salary sacrifice or is it paid separately out of your PAYE income? .  If the latter is the figure net or gross? I will assume that it is separate from your SS and the figure is gross.
2) I assume your PAYE+SE income is after the salary sacrifice.
3) I assume that your pension income is DB and has not included taxable cash from a DC pension pot.

There are 2 limits to the maximum pension contribution.  One is earned income for personal contributions and the other, the pension annual allowance, is £60K but include pension contributions from all sources. Clearly given your earned income the only one which matters is the £60K.

So you have £24846.77+£7721.29+£3246.42=£35814.48 total gross contributions.  That leaves £24185.52 available for further personal pension gross contributions. So Copilot is correct (nearly).

DRS1

As a matter of interest the OP says he was allowed into a hybrid DB/DC scheme for the 7 month contract.  Would that mean that instead of using contributions to that scheme for the annual allowance calculation you should use a pension input amount which took into account the DB benefits?

zagfles

Montmorencyterrier said:

This post may be a bit long, but I hope it is interesting.

I am trying to work out how much I can add to my SIPP this tax year.  My situation is a little messy, but I thought I understood the rules.  Partly to check and partly as an experiment, I asked ChaptGPT for its views.  I then put the same data into Co-Pilot.  These two LLMs gave me rather different answers. I then fed them the other’s output and asked which was correct.  Both gave plausible arguments for why they were correct and neither backed down.  I did seek a further view from Claude, but it could not cope.

I would be very interested to have human expert views, but also to illustrate to people – as one of these LLMs must be wrong – how dangerous it is to rely on them for financial advice.  If I wrongly followed either of them, I would either have exceeded my annual allowance or have contributed too little to my SIPP – both incurring more tax than necessary.

My situation: I retired some time ago and have a pension in payment (and an existing SIPP - important for any carry-forward).  I was enticed back to work on a 7 month contract which included rejoining a hybrid DB/DC pension scheme which allowed salary sacrifice.

The numbers:

·       PAYE and self-employed income: £61,909.66

·       Salary sacrificed: £24,846.77

·       Employer pension contribution: £7,721.29

·       Employee pension contribution: £3,246.42

·       Pension income £80,099.00

·       Interest income: £38,509.34

 Given the same prompts, ChatGPT told me I could contribute £33,816.47 gross to my SIPP, while Copilot told me I could contribute £24,187 gross.  Both gave step-by-step reasoning for their outputs.  I challenged both with the other’s responses and they outlined why they were still right.

I then posed the issue of carry-forward as I did not use my full allowance last year, and, again, both gave wildly different answers – but maybe that is a story for another day.

I would be interested to know which AI is correct in my case, and suggest that anyone who uses one does so with scepticism.

Thanks

Surprisingly ChatGPT appears to be correct! Assuming the first line is PAYE income and SE profits before any pension conts/sal sac deducted. 

The calculation is simply income after sal sac minus any personal/employee pension conts. This is the tax relief limit (note there is NO carry forwards for the tax relief limit). 

The annual allowance is almost certainly not an issue, since you'll have loads of carry forwards as you've not been working, yet were clearly a member of a pension scheme. Note that if you carried on working for the next few years the AA will become an issue and it will get quite complicated to work out the limit, due to the DB element. 

zagfles

Linton said:

Montmorencyterrier said:

This post may be a bit long, but I hope it is interesting.

I am trying to work out how much I can add to my SIPP this tax year.  My situation is a little messy, but I thought I understood the rules.  Partly to check and partly as an experiment, I asked ChaptGPT for its views.  I then put the same data into Co-Pilot.  These two LLMs gave me rather different answers. I then fed them the other’s output and asked which was correct.  Both gave plausible arguments for why they were correct and neither backed down.  I did seek a further view from Claude, but it could not cope.

I would be very interested to have human expert views, but also to illustrate to people – as one of these LLMs must be wrong – how dangerous it is to rely on them for financial advice.  If I wrongly followed either of them, I would either have exceeded my annual allowance or have contributed too little to my SIPP – both incurring more tax than necessary.

My situation: I retired some time ago and have a pension in payment (and an existing SIPP - important for any carry-forward).  I was enticed back to work on a 7 month contract which included rejoining a hybrid DB/DC pension scheme which allowed salary sacrifice.

The numbers:

·       PAYE and self-employed income: £61,909.66

·       Salary sacrificed: £24,846.77

·       Employer pension contribution: £7,721.29

·       Employee pension contribution: £3,246.42

·       Pension income £80,099.00

·       Interest income: £38,509.34

 Given the same prompts, ChatGPT told me I could contribute £33,816.47 gross to my SIPP, while Copilot told me I could contribute £24,187 gross.  Both gave step-by-step reasoning for their outputs.  I challenged both with the other’s responses and they outlined why they were still right.

I then posed the issue of carry-forward as I did not use my full allowance last year, and, again, both gave wildly different answers – but maybe that is a story for another day.

I would be interested to know which AI is correct in my case, and suggest that anyone who uses one does so with scepticism.

Thanks

I am somewhat confused by your figures...

In particular:
1) is the employee contribution included within the salary sacrifice or is it paid separately out of your PAYE income? .  If the latter is the figure net or gross? I will assume that it is separate from your SS and the figure is gross.
2) I assume your PAYE+SE income is after the salary sacrifice.
3) I assume that your pension income is DB and has not included taxable cash from a DC pension pot.

There are 2 limits to the maximum pension contribution.  One is earned income for personal contributions and the other, the pension annual allowance, is £60K but include pension contributions from all sources. Clearly given your earned income the only one which matters is the £60K.

So you have £24846.77+£7721.29+£3246.42=£35814.48 total gross contributions.  That leaves £24185.52 available for further personal pension gross contributions. So Copilot is correct (nearly).

This is wrong on several levels.

For a start, OP will have loads of carry forwards, so it will be the tax relief limit that is the limiting factor.

Secondly the PIA for the AA calculation (not that it's really needed) wouldn't simply be contributions as it's a hybrid DB scheme. It'll be more complicated. 

zagfles

DRS1 said:

As a matter of interest the OP says he was allowed into a hybrid DB/DC scheme for the 7 month contract.  Would that mean that instead of using contributions to that scheme for the annual allowance calculation you should use a pension input amount which took into account the DB benefits?

Yes. But as above the AA is highly unlikely to be an issue this year. Unless it's a very generous scheme. 

Secret2ndAccount

You earned 61909 but you told your employer to keep 24846 and put it into your pension.
Therefore, you really earned 37062. So you can pay 37062 into your SIPP, including tax relief.
But you already paid in 3246.  Therefore you have 33816 left that you can pay in. You pay 27053.18 and the taxman tops it up to 33816.47.  Or you have your employer deduct another 33816 before working out your tax, and pay that into the pension for you, but it sounds like it might be too late for that.
So the correct answers would be 27053.18 or 33816.47. Depends on exactly how you asked the question.
ChatGPT has given you a correct answer (I find this happens a lot) and Copilot has got it wrong (I find this happens a lot).
Copilot has worked out how much annual allowance headroom you have, but is only taking account of 1 year, not your ability to use carry forward. It's quite possible the way the question was posed might have led it down the alley of AA rather than tax relief - it's important to ask the right question. Still the answer is not good, because it misses important information about CF.
Did ChatGPT say anything about the Annual Allowance, and carry forward?

Montmorencyterrier

Thank you to all those who have responded and provided insightful comments. It seems it is not as clear-cut as one might have hoped. I provided the LLMs with exactly the same prompts, but as has been pointed out, they may have interpreted it differently – which is quite worrisome.

My first set of prompts did not mention carry-forward, and neither model asked about it.  They knew I had not triggered the MPAA. The explanations by both as to which is correct run to too many pages for here, but seem to boil down to debate over whether the constraint was the AA or my relevant earnings and how the employer contribution was counted.

In answer to a few queries – the income is before salary sacrifice, the employee pension contribution was by salary sacrifice (mostly DB), the salary sacrifice listed is additional into the DC portion, I had assumed that, as my DB pensions are in payment, then there would be no input amount and that I could simply use contributions – but for completeness my DB accrual is £563.61 (do I need to treat this differently here?).

My income last year was £8,568.25 and I contributed £4600 to my SIPP. So, I had lots of carry forward if it would help.