Paying lump sum into pension

Marcon

DRS1 said:

zutman said:

says on web site I can pop a lump sum in up to 60k less what ive put in this year 

I may be wrong because I don't know what you are looking at but I think the £60k figure is the annual allowance.  It takes into account employer contributions as well as employee contributions (assuming we are talking about a defined contribution pension)

That is a separate limit from the tax relief limit on your contributions (which is your taxable earnings - confusingly for you also £60k).  For that limit you only look at what you have contributed and ignore employer contributions.

£60K is OP's earnings so that's what they are looking at:

zutman said:

sorry I can t get my hand round it, 

I want to pay 30k lump sum into my pension, im 58 and earn around 60k and pay 15% into my pension 3% the company puts in, its stuck in an isa earning nothing so what tax relief will I get ? I don't understand the 40% bit how do I get it, and is it worth doing ? 

Thanks 

Marcon

DRS1 said:

Marcon said:

DRS1 said:

You may want to check with SL how they will deal with a lump sum contribution you pay them.

What you describe is the relief at source contribution and is common for contributions which come out of your salary.  But sometimes you find that one off lump sums not paid out of salary get treated differently - ie SL don't claim the 20%.  If that happens it can get very confusing with HMRC when you try to claim tax relief because they will assume SL will have claimed the 20%.

No - if it's a relief at source scheme, the provider claims 20% on all contributions made by the member, whether those contributions are deducted from their salary or paid personally from other funds.

The confusion sets in if the pension scheme is a 'net pay' scheme - a that's a confusing bit of terminology if ever there was one! In that case, the member needs to claim tax relief for personal contributions which are not deducted from gross pay.

Employer contributions (a term which includes any an employee makes via salary sacrifice) are always paid gross,

I am sure I have seen at least one thread on here where someone contributed a lump sum and no 20% was claimed by the pension even though other contributions had the 20% claimed.  Not sure how I would find it though.  But if you are right then it should be simple enough for the OP.  Assuming they want to contribute such a large amount when they will get little higher rate relief.

It's how HMRC says it works: https://www.gov.uk/guidance/pension-administrators-reclaim-tax-relief-using-relief-at-source#how-relief-at-source-works

zutman

thanks all its going in tomorrow decided on 40k I will take the 20% and the fund is making more anyhow so its a win win 

DRS1

Marcon said:

DRS1 said:

zutman said:

says on web site I can pop a lump sum in up to 60k less what ive put in this year 

I may be wrong because I don't know what you are looking at but I think the £60k figure is the annual allowance.  It takes into account employer contributions as well as employee contributions (assuming we are talking about a defined contribution pension)

That is a separate limit from the tax relief limit on your contributions (which is your taxable earnings - confusingly for you also £60k).  For that limit you only look at what you have contributed and ignore employer contributions.

£60K is OP's earnings so that's what they are looking at:

zutman said:

sorry I can t get my hand round it, 

I want to pay 30k lump sum into my pension, im 58 and earn around 60k and pay 15% into my pension 3% the company puts in, its stuck in an isa earning nothing so what tax relief will I get ? I don't understand the 40% bit how do I get it, and is it worth doing ? 

Thanks 

and yet your answer to the same post was about the annual allowance!

DRS1

Marcon said:

DRS1 said:

Marcon said:

DRS1 said:

You may want to check with SL how they will deal with a lump sum contribution you pay them.

What you describe is the relief at source contribution and is common for contributions which come out of your salary.  But sometimes you find that one off lump sums not paid out of salary get treated differently - ie SL don't claim the 20%.  If that happens it can get very confusing with HMRC when you try to claim tax relief because they will assume SL will have claimed the 20%.

No - if it's a relief at source scheme, the provider claims 20% on all contributions made by the member, whether those contributions are deducted from their salary or paid personally from other funds.

The confusion sets in if the pension scheme is a 'net pay' scheme - a that's a confusing bit of terminology if ever there was one! In that case, the member needs to claim tax relief for personal contributions which are not deducted from gross pay.

Employer contributions (a term which includes any an employee makes via salary sacrifice) are always paid gross,

I am sure I have seen at least one thread on here where someone contributed a lump sum and no 20% was claimed by the pension even though other contributions had the 20% claimed.  Not sure how I would find it though.  But if you are right then it should be simple enough for the OP.  Assuming they want to contribute such a large amount when they will get little higher rate relief.

It's how HMRC says it works: https://www.gov.uk/guidance/pension-administrators-reclaim-tax-relief-using-relief-at-source#how-relief-at-source-works

Well I did have a look for the thread I "remembered" but could not find it.  All the ones I could find talked about net pay schemes or salary sacrifice for the regular contributions.

Marcon

DRS1 said:

Marcon said:

DRS1 said:

zutman said:

says on web site I can pop a lump sum in up to 60k less what ive put in this year 

I may be wrong because I don't know what you are looking at but I think the £60k figure is the annual allowance.  It takes into account employer contributions as well as employee contributions (assuming we are talking about a defined contribution pension)

That is a separate limit from the tax relief limit on your contributions (which is your taxable earnings - confusingly for you also £60k).  For that limit you only look at what you have contributed and ignore employer contributions.

£60K is OP's earnings so that's what they are looking at:

zutman said:

sorry I can t get my hand round it, 

I want to pay 30k lump sum into my pension, im 58 and earn around 60k and pay 15% into my pension 3% the company puts in, its stuck in an isa earning nothing so what tax relief will I get ? I don't understand the 40% bit how do I get it, and is it worth doing ? 

Thanks 

and yet your answer to the same post was about the annual allowance!

I was referring to OP's salary which by coincidence is £60K. Beware adding to the confusion by that sort of comment.

DRS1

Marcon said:

DRS1 said:

Marcon said:

DRS1 said:

zutman said:

says on web site I can pop a lump sum in up to 60k less what ive put in this year 

I may be wrong because I don't know what you are looking at but I think the £60k figure is the annual allowance.  It takes into account employer contributions as well as employee contributions (assuming we are talking about a defined contribution pension)

That is a separate limit from the tax relief limit on your contributions (which is your taxable earnings - confusingly for you also £60k).  For that limit you only look at what you have contributed and ignore employer contributions.

£60K is OP's earnings so that's what they are looking at:

zutman said:

sorry I can t get my hand round it, 

I want to pay 30k lump sum into my pension, im 58 and earn around 60k and pay 15% into my pension 3% the company puts in, its stuck in an isa earning nothing so what tax relief will I get ? I don't understand the 40% bit how do I get it, and is it worth doing ? 

Thanks 

and yet your answer to the same post was about the annual allowance!

I was referring to OP's salary which by coincidence is £60K. Beware adding to the confusion by that sort of comment.

Who is confusing who? Read the posts again.

zutman

ok so I contacted standard life today and asked how much lump sum can I pay in ? answer you need to contact HMRC to get a figure or you may get penalised so 3 hours later HMRC said you can pay in 60k so I said what about the 13k I will pay in this year from my work and he said get this you would be best to employ a financial advisor, !!!!!!.... 60k less what my work has paid in so 60 - 13 = 47 so 47k left to pay in so if I said for easy numbers 35k x 20% would give me 42.  so if I paid in 35k I should be well in. 

But who knows 

Aylesbury_Duck

zutman said:

ok so I contacted standard life today and asked how much lump sum can I pay in ? answer you need to contact HMRC to get a figure or you may get penalised so 3 hours later HMRC said you can pay in 60k so I said what about the 13k I will pay in this year from my work and he said get this you would be best to employ a financial advisor, !!!!!!.... 60k less what my work has paid in so 60 - 13 = 47 so 47k left to pay in so if I said for easy numbers 35k x 20% would give me 42.  so if I paid in 35k I should be well in. 

But who knows 

Why undershoot it?  I've slightly overshot each year for the last two years.  It's caused no problem, I just pay HMRC the charge to cover the excess once I've done my self assessment.  It's been a few hundred quid each year, but I'm happy to have maxed out my £60k allowance.

Dazed_and_C0nfused

zutman said:

ok so I contacted standard life today and asked how much lump sum can I pay in ? answer you need to contact HMRC to get a figure or you may get penalised so 3 hours later HMRC said you can pay in 60k so I said what about the 13k I will pay in this year from my work and he said get this you would be best to employ a financial advisor, !!!!!!.... 60k less what my work has paid in so 60 - 13 = 47 so 47k left to pay in so if I said for easy numbers 35k x 20% would give me 42.  so if I paid in 35k I should be well in. 

But who knows 

You have misunderstood how the basic rate tax relief works.

If you contribute £35k using the relief at source method then the pension company will add £8,750 (25% of your contribution).

That makes a gross contribution of £43,750.  20% of which is £8,750.