Can anyone kindly confirm how much I can pay into my SIPP each tax year?

TZ350

Hello to all, this is first thread after years lurking and learning a lot. 

I am 59 and in full-time employment.

My gross annual salary is £58,000 which I am currently using sal sac to reduce down to minimum wage - c. £23,000  - by way of my work employer's DC scheme.

I also have a SIPP with II and wish to pay as much as possible into that each tax year (making net monthly payments from savings which are then uplifted by 25% I understand).

Am I correct in my understanding that I can pay £23,000 gross (i.e. my gross annual salary after the application of sal sac), equating to total net payments in the sum of  £18,400 into my SIPP each year?

Can anyone also kindly explain why the net payments I make into the SIPP are uplifted by 25% (and not by  20%) as I had expected the uplift to reflect my marginal tax rate of 20%).

All guidance gratefully received.  Thank you.    

eskbanker

TZ350 said:

Can anyone also kindly explain why the net payments I make into the SIPP are uplifted by 25% (and not by  20%) as I had expected the uplift to reflect my marginal tax rate of 20%).

The tax relief is 20% of the gross, which is the same as 25% of the net.

Albermarle

There is a limit on how much you can add to a pension each year of £60K ( regardless of how much you earn) . This also includes any employer contribution.
As you will be adding £58K (gross) then presuming your employer also contributes you will be over his limit.

However if you did not add £60K last tax year, you can utilise any unused allowance for the last 3 years ( noting it was £40K until a couple of years ago) .

Regarding the 20%/25% .

If you earn a £100 and pay tax of 20% , you have £80 left.
If you then add £80 to a pension it has to be increased by 25% to get back to £100.

Isthisforreal99

Just remember that in your circumstances you are getting 20% relief on the SIPP contributions and with the amounts you are saving into your pension is there a danger that you will be in danger of paying 40% when you access the pension, depending on how you access it.

RoysV

Albermarle said:

There is a limit on how much you can add to a pension each year of £60K ( regardless of how much you earn) . This also includes any employer contribution.
As you will be adding £58K (gross) then presuming your employer also contributes you will be over his limit.

However if you did not add £60K last tax year, you can utilise any unused allowance for the last 3 years ( noting it was £40K until a couple of years ago) .

Regarding the 20%/25% .

If you earn a £100 and pay tax of 20% , you have £80 left.
If you then add £80 to a pension it has to be increased by 25% to get back to £100.

That doesn't apply to the OP does it as he's only earning £58k so has no carry forward allowance? Apologies if I've mis understood how it works

zagfles

RoysV said:

Albermarle said:

There is a limit on how much you can add to a pension each year of £60K ( regardless of how much you earn) . This also includes any employer contribution.
As you will be adding £58K (gross) then presuming your employer also contributes you will be over his limit.

However if you did not add £60K last tax year, you can utilise any unused allowance for the last 3 years ( noting it was £40K until a couple of years ago) .

Regarding the 20%/25% .

If you earn a £100 and pay tax of 20% , you have £80 left.
If you then add £80 to a pension it has to be increased by 25% to get back to £100.

That doesn't apply to the OP does it as he's only earning £58k so has no carry forward allowance? Apologies if I've mis understood how it works

You have misunderstood how it works. You don't need to earn over £60k to use carry forwards. Don't worry, even IFAs get this wrong. 

If OP earns £58k and has over £2k in employers contributions, then he can use carry forwards to sal sac down to min wage and contribute the rest of his gross income to his SIPP. Total pension input amount is over £60k. 

Smudgeismydog

zagfles said:

RoysV said:

Albermarle said:

There is a limit on how much you can add to a pension each year of £60K ( regardless of how much you earn) . This also includes any employer contribution.
As you will be adding £58K (gross) then presuming your employer also contributes you will be over his limit.

However if you did not add £60K last tax year, you can utilise any unused allowance for the last 3 years ( noting it was £40K until a couple of years ago) .

Regarding the 20%/25% .

If you earn a £100 and pay tax of 20% , you have £80 left.
If you then add £80 to a pension it has to be increased by 25% to get back to £100.

That doesn't apply to the OP does it as he's only earning £58k so has no carry forward allowance? Apologies if I've mis understood how it works

You have misunderstood how it works. You don't need to earn over £60k to use carry forwards. Don't worry, even IFAs get this wrong. 

If OP earns £58k and has over £2k in employers contributions, then he can use carry forwards to sal sac down to min wage and contribute the rest of his gross income to his SIPP. Total pension input amount is over £60k. 

Contributions are the lower of;

- £60,000
- 100% of salary

Therefore, if you earn less than £60,000, you cannot use carry forward.

QrizB

Smudgeismydog said. 

Contributions are the lower of;
- £60,000
- 100% of salary

I don't think that's the whole truth.

Smudgeismydog said:

Therefore, if you earn less than £60,000, you cannot use carry forward.

And, because the former part isn't the whole truth, this statement is incorrect.

Albermarle

Smudgeismydog said:

zagfles said:

RoysV said:

Albermarle said:

There is a limit on how much you can add to a pension each year of £60K ( regardless of how much you earn) . This also includes any employer contribution.
As you will be adding £58K (gross) then presuming your employer also contributes you will be over his limit.

However if you did not add £60K last tax year, you can utilise any unused allowance for the last 3 years ( noting it was £40K until a couple of years ago) .

Regarding the 20%/25% .

If you earn a £100 and pay tax of 20% , you have £80 left.
If you then add £80 to a pension it has to be increased by 25% to get back to £100.

That doesn't apply to the OP does it as he's only earning £58k so has no carry forward allowance? Apologies if I've mis understood how it works

You have misunderstood how it works. You don't need to earn over £60k to use carry forwards. Don't worry, even IFAs get this wrong. 

If OP earns £58k and has over £2k in employers contributions, then he can use carry forwards to sal sac down to min wage and contribute the rest of his gross income to his SIPP. Total pension input amount is over £60k. 

Contributions are the lower of;

- £60,000
- 100% of salary

Therefore, if you earn less than £60,000, you cannot use carry forward.

The £60k annual allowance includes employer contributions.
So for example if you earned £50k and added the whole lot ( gross) to a pension(s)
Then your (generous ) employer added £15k , then you would be over the £60k limit unless you could carry forward unused allowance from previous years .

Smudgeismydog

QrizB said:

Smudgeismydog said. 

Contributions are the lower of;
- £60,000
- 100% of salary

I don't think that's the whole truth.

Smudgeismydog said:

Therefore, if you earn less than £60,000, you cannot use carry forward.

And, because the former part isn't the whole truth, this statement is incorrect.

Member contributions

There’s no limit on the amount that an individual can contribute to a registered pension scheme. If you’re a UK resident aged under 75 you may receive tax relief on your contributions to registered pension schemes.

Tax relief is limited to relief on contributions up to the higher of:

• 100% of your UK taxable earnings
• £3,600

For 2025/26 the tax free annual limit is 100% of your salary or £60,000 (whichever is lower). This includes both contributions paid by you and contributions paid by your employer.

Limits to tax-free contributions

An annual allowance limits the amount someone can pay into pension schemes each year before they must pay income tax. In 2025/26, people can contribute up to £60,000 into pension schemes without paying income tax.

Usually, people cannot receive tax relief on pension contributions above their annual earnings. However, people can still contribute up to £3,600 a year, including tax relief, even if their earnings are lower than this (see box 4 below).

I’ve taken all of the above quotes from Government and other reliable sources 

Albermarle

The gov.uk info is not very well explained.
See my post just before yours.