Annual Allowance and Salary

ClashCityRocker1

Question about the amounts I can put into a pension and annual allowance. I know I am limited to my annual paid salary. So…

If I earn, say, £57,000 and am in defined benefits scheme. My pension grows by £2000 in a year and there is no automatic lump sum and CPI for the sake of argument is nil. So my pension input amount is 32000. The annual allowance this year and last year is £60K

So the question is if I put £57,000 in a pension too the total for the year is 57000 + 32000 = 89000

My question is if I then want to use previous year’s annual allowance am 29K over this year (i.e over £60K) or 32k over this year (ie over 57K)

And similarly if I earned 57K each of the previous years is my annual allowance for those years 60K or 57K?

vacheron

As far as I understand it, you can only carry forward previous years pension allowances if you have earned in excess of the £60K allowance in this tax year.

So say if you earn £100K and want to put all of it into your pension in 2025-26, you can use this years £60K allowance and carry forward any unused part of your £40K 2022-23 allowance. If this isn't sufficient, you can then use any unused 2023-24 allowance, and then 2024-25.

However if you earn £60K and want to contribute all your salary, and say £40K from savings, I do not believe you are permitted to carry forward previous allowances.

ClashCityRocker1

so if i earn £59,999 and put that much into my pension and also have a defined benefit scheme which will have a pension input I can't use carry forward at all?

That's going to cost me some money!

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6659623/annual-allowance-and-salary

If you "earn" £57k and are in a DB scheme chances are your pensionable earnings are a fair bit less than £57k (due to most DB schemes using the net pay method of contributing).

Or have you already factored that in to your figure?

Irrespective of that though why do you think the annual allowance could ever be £57k?

vacheron

I'm not familiar with how defined benefit schemes are valued, (I have one but it was deferred many moons ago). However, I think even without the defined benefit in the mix, you couldn't carry forward anything with an income of £59,999.

I think the reason is to stop people cashing in just before retirement. Imagine if everyone earning £20K PA could take all their savings (or house sale proceeds), one day before retirement, and use the 3 years of carry forward allowances to contribute £220K into their pension in a single year. 🤨

ClashCityRocker1

https://forums.moneysavingexpert.com/discussion/comment/81922463#Comment_81922463

eh? if they only earn £20K they can only put in £20K can't they?

vacheron

https://forums.moneysavingexpert.com/discussion/comment/81922476#Comment_81922476

Yes, the same as if you earn £57K you can only put £57K in. No carry forward permitted.

ClashCityRocker1

no sorry I don't understand that - my pensionable earnings for 2025/2026 will be c £58K out of which I pay pension contributions.

never heard of net pay. My payslip has pensionable earnings on it and it is the same as my gross pay.

ClashCityRocker1

Mine is the Civil Service scheme - except in rare cases (unconsolidated lump sums) my pension is based upon my gross pay

hugheskevi

My question is if I then want to use previous year’s annual allowance am 29K over this year (i.e over £60K) or 32k over this year (ie over 57K)

£29K over this year

And similarly if I earned 57K each of the previous years is my annual allowance for those years 60K or 57K?

Unless you are a very high earner and subject to tapering, or subject to the Money Purchase Annual Allowance, you always have the £60,000 available (£40,000 in 2022/23 and earlier years).

As far as I understand it, you can only carry forward previous years pension allowances if you have earned in excess of the £60K allowance in this tax year.

This is incorrect. Many relatively low earners, eg, £30-40K, with long service in final salary schemes exceed a £60,000 pension input when promoted. They use carry-forward.

However if you earn £60K and want to contribute all your salary, and say £40K from savings, I do not believe you are permitted to carry forward previous allowances.

You would not receive any tax relief on the £40K (you would initially have Relief-at-Source applied automatically, but eventually HMRC reconciliations would catch up). You could still use carry-forward to mitigate or remove an Annual Allowance charge.

so if i earn £59,999 and put that much into my pension and also have a defined benefit scheme which will have a pension input I can't use carry forward at all?

You could use carry-forward.

However, I think even without the defined benefit in the mix, you couldn't carry forward anything with an income of £59,999.

This is incorrect.

I think the reason is to stop people cashing in just before retirement. Imagine if everyone earning £20K PA could take all their savings (or house sale proceeds), one day before retirement, and use the 3 years of carry forward allowances to contribute £220K into their pension in a single year. 🤨

Such an individual would only get tax relief on £20K, not the £220K. They can still use carry-forward to mitigate or remove an Annual Allowance charge.

Isthisforreal99

https://forums.moneysavingexpert.com/discussion/comment/81922490#Comment_81922490

Then your gross pay and taxable pay will be different. Taxable is what mattters for further pension contributions to a SIPP for example.

Civil Service is definitely net pay scheme.