SIPP, Sal Sac and AI confusion

Linton

zagfles said:

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. 

1) At the moment the OP is ignoring carry forward.

2) I missed the DB aspect for the new pension so yes the OPs figures on contributions to the scheme are irrelevent. However the correct treatment of a hybrid DB/DC scheme is unclear to me, I guess the two aspects need to be separated.

3) Given what the OP said it is the AA calculation that limits the SIPP contribution.  Earnings apparently  aren't an issue.  However from @Secret2ndAccount it appears that the OPs claim that his PAYE and self employed income is £61K may be incorrect and that this figure actually includes Salary Sacrifice which of course isnt PAYE. My assumption (2) that the PAYE figure does not include SS makes this clear.

To give an accurate answer for any financial queries one needs full and accurate data on the circumstances.

It would seem that both AIs are correct depending on the assumptions made from the OPs supplied data..

zagfles

Montmorencyterrier said:

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.

This is getting confusing - your DB pensions are in payment but you are accruing further DB benefits, so a PIA calculation is needed for these for AA purposes. What do you mean by "DB accrual is £563", is that the amount of extra pension pa, or the PIA? Working out the PIA for DB is quite complicated, as it accounts for inflation as well as the amount your pension increases.

But as above, if this is a one off, and you contributed very little in the past 3 tax years, then the AA almost certainly isn't going to be a problem as you have loads of carry forwards, so you don't need to worry about it and PIAs etc. Just work out the tax relief limit, as above. You'll only need to worry about the AA if you carry on working over the next few years.