Another PIA question please... (LGPS)

YellowCarBlueCar

I'm still working out the maximum SIPP contribution we can make to my wife's pension this year.

I've got the DC part worked out, but to complicate matters she's now taken a fixed term contract which used the LGPS. The contract is for 4 months, 2 this FY and 2 next, and she has no other LGPS or public sector pensions.

As I understand the scheme rules, she cannot actually receive a pension from the scheme with less than 2 years' service, so at the end of the contract she'll either have to take a refund of the contributions, or transfer to another pension.

I presume that I still need to apply the DB rules for the 2 months of this year's contributions?

So on a salary of £26K, for 2 months that would be (with an accrual rate of 1/49):

2/12 (of a year) divided by 49 (accrual rate) x £26K salary to give a pension value of £88.43

Which then has a capitalisation value of 16 x £88.43 giving £1414.97 as the pension input amount?

It seems like quite a hefty reduction in what we can contribute to her SIPP compared to what we'll actually be able to transfer across (about £320) when she leaves.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6659010/another-pia-question-please-lgps

How much is she thinking of contributing and where does the income to make that an allowable contribution come from (this isnt about how she can afford it).

Could you be conflating the annual allowance rules and the tax relief rules?

Marcon

It seems like quite a hefty reduction in what we can contribute to her SIPP compared to what we'll actually be able to transfer across (about £320) when she leaves.

I think the transfer value would - happily! - be more than you believe.

If she's on a salary of £26K, the employee contribution is 5.8%, or £1,508 a year, so she'd make (gross) contributions of 4/12 of that: £502.66. If she took a refund of her contributions, basic rate tax would be deducted (non-reclaimable even if she's a non-taxpayer at the time), bringing the refund down to £402.

If she transfers to another pension scheme (such as her SIPP), the transfer value would include 'something from the employer' - and that something is likely to be very well in excess of her own contributions. It's not possible to give any sort of accurate guess, but once she's left, she should certainly check how much she'd lose by taking a refund rather than transferring.

YellowCarBlueCar

Thanks - I don't think I'm conflating two things - but happy to explain what I'm trying to do…

We have proceeds from a house sale, so putting as much as possible into pensions and ISAs. Mine is straightforward as it's just the £60k annual allowance.

For my wife it's the lesser of £60K or relevant earnings - and it will be the earnings which is the limit for her. So across her two employments the salary (after salary sacrifice to pension for the private sector job) will be £23,000.

I've then subtracted the total private sector pension contributions (£13,000) from her salary leaving £10,000 gross allowance.

So now I'm trying to work out what I need to subtract from the remaining £10,000 to account for the contributions for the public sector (DB) scheme for the last 2 months of the FY, and coming up with the £1,414.97 figure.

Marcon

So now I'm trying to work out what I need to subtract from the remaining £10,000 to account for the contributions for the public sector (DB) scheme for the last 2 months of the FY, and coming up with the £1,414.97 figure.

…which is £251.33 (see my post above re her contributions).

But if her contributions are made by salary sacrifice in respect of her private sector job, she hasn't actually made any personal contributions from the sound of it, so why deduct the £13,000? Salary sacrifice is classed as an employer contribution.

You don't need to worry about employer contributions unless your wife is in danger of breaching the annual allowance, and from the sound of it she's nowhere near that.

Put simply:

• add her gross (post-salary sacrifice) earnings from her private sector job to her gross public sector earnings for the tax year in question
• deduct any personal contributions (which excludes any made by salary sacrifice) made during that tax year
• she can pay 80% of the resulting figure to her SIPP, with the provider adding tax relief to bring it up to 100% of her gross earnings for the year.

Marcon

We have proceeds from a house sale, so putting as much as possible into pensions and ISAs. Mine is straightforward as it's just the £60k annual allowance.

Do you have any carry forward available from previous years?

YellowCarBlueCar

Thanks! - of course - so yes I was treating the relevant earnings as a cap on total contribution (in the way that the 60K AA is) - so a big mistake there…

As for carry-forward, I used everything available to me last year - so nothing left for me I'm afraid.

Silvertabby

Just throwing in something now just in case it throws a spanner in the works later…

OP says that his wife's LGPS contract is for 4 months, after which she will have the choice of a refund of her own contributions or a transfer to another pension scheme. That is true - but, if for any reason, she does less less than 3 months (even by just one day) then a transfer is no longer possible and her only option would be a refund.

YellowCarBlueCar

Thanks Silvertabby, understood. While that would be a less favourable outcome overall, she will still have made the employee's contributions this FY, so need to account for them in the total contributions this year.