Pension Carry Forward

PHANTOM1125

Hi Many Thanks for the reply.

1st paragraph sounds right.

Yes I am lucky enough to have quite a bit more which I would earn good interest to cover some living costs. So indeed when all inheritance comes in, I would want to put in maybe 50% + 9% employer of my salary by SS.

Yes my employer is fine with the increases.

How does this fit in with carry forward though?

PHANTOM1125

Hi DRS1. Yes that was my first tactic so I put more in to not pay 40%.

PHANTOM1125

and forgot to say this is a short term plan as I intend retire April 2028

QrizB

You can only salary sacrifice down to national minimum wage so you could not get your whole salary into the pension that way but you could get a lot of it in that way.

If the OP has already made a £20k net / £24k gross relief-at-source cash contribution, that's in the same ballpark as national minimum wage (depending on hours worked, eg. For 37.5 hours per week, NMW is £23810).

With £59800 salary, the employer's 9% contribution is ~£5400 a year. If the OP is able to salsac down to £24k pa their total pension contributions for the year will be £65200 and they'll be making use of carry-forward.

(Given that we're already a month in to the financial year, OP probably won't be able to salsac enough in 11 months to get quite that low, so they might want to make another cash contribution later in the FY when they can accurately forecast their end-of-year numbers.)

PHANTOM1125

So I can carry forward is relevant in my situation as when all inheritance arrives I would want to SS right down to maybe £1500 in my wallet per month.

Thanks for all your help but to the layman you can see how this is not very clear.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81990542#Comment_81990542

How does it fit in with carry forward?

I think @QrizB has done some figures which show how carry forward might apply. I confess I am not much good at working out national minimum wage etc but those figures seem to suggest your plan of 50% salary sacrifice would be the right side of the line from a NMW point of view.

The reason the carry forward would apply is not so much your contributions as the employer's. They count towards the £60k annual allowance. Crudely if you have used a combination of salary sacrifice and relief at source contributions to get your whole £59k salary into the pension then on its own that is still under the £60k allowance but when you add on the employer contributions of say £5k you have gone over the £60k and will use up £4k of carry forward.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81990547#Comment_81990547

The plan seems to have evolved. Getting tax relief at 20% can still be good as long as you are paying 20% on the taxable pension on the way out. The 25% tax free lump sum gives you a gain. But if you may be paying 40% on the pension on the way out it is not good.

I am just suggesting that you consider if spreading the contributions over the next couple of years may be better but obviously I don't know how much inheritance you have to get into the pension.

Secret2ndAccount

Suppose you asked your employer to sal-sac 35k. For most purposes, including pension limits, you never earned that money - it went straight to your pension as an employer's contribution.

You are left with a salary of 25k. You could, for example, open a SIPP and pay in 20k. The taxman would top it up with 5k of tax relief, giving you 25k in the SIPP. You might also be able to do this with your work pension, if they accept payments this way. You wouldn't want to do this with more than the 25k you earned. There's limit 1 - you can't get tax relief on pension contributions beyond your earnings.

Given the sal-sac and your employers own part, you get 42k into your work pension. So the total of all your pension inputs for the year (employer + you + taxman) is 67k. That's more than 60k, but it's okay. This is the bit where you get to do carry forward. You can exceed the 60k limit if you have leftover allowance from previous years. So yes, you are able to use carry forward to add more than 60k total into your pension this year.

Two sepaprate limits. The tax relief limit is stricty year by year. The annual allowance limit allows carry forward.

PHANTOM1125

Thanks for your reply. That could be good advice to run by my partners financial advisor friend in August.