Higher tax rate

martinnoddy

monkey-fingers said:

DRS1 said:

Is there scope for making any pension contributions this tax year?  That may save a bit of tax and maybe restore your personal allowance if you can get below £100k.  But if you were in the CSP then you may need some specialist advice on that.

I think there almost certainly will be!
There's no chance that they've paid £60k into their pension for the last 3 years.

I mean, theoretically, they could probably squeeze in the full £120k into a SIPP and claim the tax back.

Thanks for that, not sure how I would go about that, is there a particular financial advisor/info source that you could direct me towards?

DRS1

There is a page on this site which has some useful info
Pensions: Everything you need to know for retirement - MSE

There is also a board on this forum for Pensions
Pensions, annuities & retirement planning — MoneySavingExpert Forum
where you could ask the question.  You would need to give some figures though.  You could also search that board because lots of people ask how much they can pay into a pension and you will see from the answers that it can get complicated

The £60k mentioned by @monkey-fingers is the annual allowance.  The thing with that is that where you have been in a scheme like CSP then you will need to check something called the Pension Input Amount.  That may be in your annual benefit statements but you may not know what it is for 25/6 yet.  Someone like @hugheskevi might be able to say what it is likely to be.  If you are now in a new scheme with a new employer you also need to factor that in  (if it is a DC scheme it may be easier as it would be employer and employee contributions (plus tax relief claimed by the scheme on employee contributions))

You may say if the annual allowance is only £60k how can I pay in £120k in this year?  Well that is because you can carry forward unused annual allowance from the last three years.  Again you need to check the CSP Pension Input Amounts for those years (and check any other pension you belonged to then)

The other issue is that your personal contributions that qualify for tax relief are limited by your taxable earnings in the tax year.  This limit ignores employer contributions and pension input amounts.  It just looks at your contributions plus any tax relief on those contributions claimed by the pension scheme.  So if your taxable earnings this tax year are £150k you could contribute £120k to a SIPP and the SIPP would reclaim £30k of tax relief to give a total of £150k.  But that of course assumes you have not made any other employee contributions in the year.

There is no carry forward for this tax relief calculation so if next tax year your taxable earnings are £20k then £20k is the limit on what you can contribute (gross) to a pension that year and get tax relief.

I have probably used some incorrect language (taxable earnings for example) and made it sound complicated but don't let that put you off.

And paying all your taxable earnings into a SIPP is just an extreme example.  It may not leave you anything to live on for a start.  But plenty of people structure their contributions to bring them below a threshold - whether that is the higher rate tax band or the HICBC level or the £100k level.  It can be beneficial.

Albermarle

Some basics to add to the above.

Your civil service pension is a DB ( Defined Benefit ) pension. It promises you a guaranteed pension income, loosely based on the number of years of service and your salary. Although you have to pay a contribution, it is a lot less than the cost to the employer/Govt .

Most people employed  in the private sector, and those with their own personal pensions, have DC ( Defined Contribution) pensions. These are really glorified savings/investment accounts, where you build up a pot of money which later you can withdraw. The benefit over normal saving & investing, is that you can get tax relief on your contributions. Although like with a DB pension, you will pay some tax when you make withdrawals/get income, it still has a tax advantage - especially if you are paying 40% or even 45% income tax when you contribute.
A SIPP is just a type of DC pension, a personal pension is another type. The differences are not to worry about too much, the main thing is to get the tax relief. 

Normally money in a DC pension is invested. If you are not familiar with investing- I would park that issue for now, so as not to overcomplicate things. It can wait until there is actually money in the DC pension.

This is a Govt site that can be useful.

Pensions explained | MoneyHelper

For it to work you really want the new pension set up in the next few weeks ( easier to do than you might imagine).
If you are struggling an IFA could help, but in pension/investing terms £120K is not a vast sum, so the charges will be relatively high, but still maybe worth considering.

hugheskevi

DRS1 said:

The £60k mentioned by @monkey-fingers is the annual allowance.  The thing with that is that where you have been in a scheme like CSP then you will need to check something called the Pension Input Amount.  That may be in your annual benefit statements but you may not know what it is for 25/6 yet.  Someone like @hugheskevi might be able to say what it is likely to be.  If you are now in a new scheme with a new employer you also need to factor that in  (if it is a DC scheme it may be easier as it would be employer and employee contributions (plus tax relief claimed by the scheme on employee contributions))

The Pension Input is only available from Pension Savings Statements (PSS). These can be requested, but good luck doing that with Capita at the moment. I would be surprised if you could get the 2025 PSS in time to inform a pension contribution decision for 2025/26.

I think £30K of the inefficiency payment is tax free and that bit does not count towards earnings eligible for tax relief. The unpaid leave and PILON also do not count as earnings that attract tax relief, I think (not 100% certain on that). The Mineworkers pension is not earnings eligible for tax relief. The minimum wage job is eligible earnings.

That probably leaves a fairly low amount (low being in the context of Annual Allowance) that can be put into a pension, and I think with carry-forward that will almost certainly be the limiting factor, not the Annual Allowance.

Albermarle

hugheskevi said:

DRS1 said:

The £60k mentioned by @monkey-fingers is the annual allowance.  The thing with that is that where you have been in a scheme like CSP then you will need to check something called the Pension Input Amount.  That may be in your annual benefit statements but you may not know what it is for 25/6 yet.  Someone like @hugheskevi might be able to say what it is likely to be.  If you are now in a new scheme with a new employer you also need to factor that in  (if it is a DC scheme it may be easier as it would be employer and employee contributions (plus tax relief claimed by the scheme on employee contributions))

The Pension Input is only available from Pension Savings Statements (PSS). These can be requested, but good luck doing that with Capita at the moment. I would be surprised if you could get the 2025 PSS in time to inform a pension contribution decision for 2025/26.

I think £30K of the inefficiency payment is tax free and that bit does not count towards earnings eligible for tax relief. The unpaid leave and PILON also do not count as earnings that attract tax relief, I think (not 100% certain on that). The Mineworkers pension is not earnings eligible for tax relief. The minimum wage job is eligible earnings.

That probably leaves a fairly low amount (low being in the context of Annual Allowance) that can be put into a pension, and I think with carry-forward that will almost certainly be the limiting factor, not the Annual Allowance.

The unpaid leave and PILON also do not count as earnings that attract tax relief, I think (not 100% certain on that).

AIUI , the employer does not have to pay their usual pension contributions on a PILON payment, if they do not want to.
It is possible for the employer to arrange the PILON payment to go straight into the workplace pension. However there seems to be some potential complications, and therefore some employers will not do it.

However a PILON Payment is taxable, and if received directly by the redundant employee after being taxed as normal, then it can be added to a pension and be eligible for  tax relief, just like normal employment earnings. I would guess that money for unpaid leave would be the same if it was taxed, but not sure.

Ideally someone else needs to confirm all this, as it is not really my area.

DRS1

Hmm  I found this old thread about PILONs and pensions.  The Shoosmiths link doesn't work any more so I wonder if something has changed since 2024.
Confused around PILON and pension — MoneySavingExpert Forum

This article might explain the issue in a bit more detail though it does not mention pensions
Is PILON Taxable? The Current Rules on gov.uk - LegalClarity

If I read this right the issue is about salary sacrifice (or PILON sacrifice) for more pension contributions.  That is not what the OP would be doing so hopefully the taxable PILON could be taken into account for working out his taxable earnings to establish how much he could contribute to a SIPP (ie using the relief at source method).