SIPP &Carry forward, to add to DB pension

PegasusPJ

I have a defined benefit pension through my employer. I am still under Higher rate tax even before salary sacrifice (though getting close).

I plan to retire (early to time it with older partner state pension age) in a bit over 5 years, drawing my private pension(s).

I just unfortunately inherited some money (40k), plus have already some fixed term savings coming to an end soon (almost 20k in the next 6 months).. I do go over saving tax threshold already (slightly, got some other taxed saving i want to keep for emergency)

I already max out my cash ISA every year (at present from salary leftovers+savings, from next year with lowered threshold all from salary), and will use that to top up private pensions in my pre-state pension period.

I am thinking about starting a SIPP (never had any other pension than the DB, and even that is only 8.5 years) to put that inheritance and then once at term the fixed savings. But my salary is less than what i need to put in, even before removing DB contributions.

As i understand, the carry forward would allow me to put in up to my salary of the last 3 years (though not clear if it includes this year or not) minus contributions already made.

the issue is that i don't know how to calculate those, especially the ones made by employer that I can't easily tell (because it's a DB. my own contribution is 6%). also not clear if the salary i need to use is the one before salary sacrifice or after (i suspect before, but again not clear how i can tell what it is, aside from what my DB counts for my 1/75th)

i really don't want to have to start doing self assessment btw.

thanks in advance for helping me.

QrizB

As i understand, the carry forward would allow me to put in up to my salary of the last 3 years

That's not how it works, sadly.

You can only get tax relief this year on this year's earnings. Carry forward allows you to use spare annual allowance from previous years in the event that your salary this year (and employer contributions) exceed the current year's £60k allowance.

Dazed_and_C0nfused

Are you quite sure your employer uses salary sacrifice? That isn't particularly common for a defined benefit scheme.

If they did you wouldn't be contributing 6%, you would be agreeing to a reduced salary, in return for additional employer contributions.

I suspect carry forward isn't actually going to be of any use to you but knowing how much you expect your P60 in April 2027'will show your taxable earnings as will be a step in the right direction.

Remember you have to used this year's annual allowance (£60,000) before you can start to utilised carry forward.

PegasusPJ

https://forums.moneysavingexpert.com/discussion/comment/82000217#Comment_82000217

so you mean the carry forward is only available to people making over 60k?!

MallyGirl

https://forums.moneysavingexpert.com/discussion/comment/82000225#Comment_82000225

yes it is I'm afraid

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82000226#Comment_82000226

Not so - especially if there's salary sacrifice in the mix, as there seems to be here.

Have a look at

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

and note particularly the post from @hugheskevi on 14 March, which corrects a number of common misunderstandings in this minefield of a topic.

PegasusPJ

https://forums.moneysavingexpert.com/discussion/comment/82000224#Comment_82000224

definitely have salary sacrifice (both because I had to agree to it in employment contract, and my payslip shows pre-tax deductions, which can only be my pension contribution)

I think i actually found how much my employer contribution was last year, but still not clear how i calculate what i can put in, even based on last year.. do i need to add 25% to both theirs and my contribution? is my salary for that purpose the gross before salary sacrifice and pre-tax deduction?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82000255#Comment_82000255

If it is a DB scheme then you don't need the employer's contributions you need the Pension Input Amount. That is the increase over the year in your DB benefits given a capital value. The trouble is that will usually only be known after the end of the tax year making contributions to a SIPP a bit tricky to work out.

DRS1

There is a tool for calculating the Pension Input Amount which is here

Defined Benefit Pension input amount tool

Good luck trying to fill it in.

Oh and it probably won't help if you are in something like USS which has a mix of DB and DC benefits.

PegasusPJ

https://forums.moneysavingexpert.com/discussion/comment/82000296#Comment_82000296

i'm in Saul, so not mixed.

but I'm even more confused now.. that calculator seems about what i would get from the pension, not what i contribute in a year (why ask for years otherwise)

NoMore

https://forums.moneysavingexpert.com/discussion/comment/82000302#Comment_82000302

Thats correct, you are trying to calculate the value of the DB pension increase in a year, so a extra year's service will give you more DB income compared to the previous year. There's also an inflation correction in the calc to see if it's a real increase.