SIPP &Carry forward, to add to DB pension

DRS1

You have an annual allowance which is £60k. If you were in a nice straightforward Defined Contribution Scheme then you would be looking at adding up employer contributions your contributions (if any - and there may not be any if you are doing salary sacrifice) and tax relief claimed by the pension scheme on your contributions (again for salary sacrifice there would be none of that - there is no tax relief claimed on employer contributions). Then you compare that figure to the £60k. Nice and simple.

But for a DB Scheme you need this thing called a Pension Input Amount. It is a complicated calculation but it is basically looking at how much has your pension increased over the year. If you calculate the increase as say £40k then that leaves you £20k of annual allowance for the year. That £20k is the gross contribution you could make to a SIPP without having to worry about carry forward of unused annual allowance from any of the last three years.

People have asked about your taxable earnings for the year. Let's say they are £50k (after the salary sacrifice). That means you could contribute gross £50k to the SIPP and get tax relief on it That would be a net contribution of £40k which would get £10k tax relief in the SIPP giving a total of £50k.

But to do that you would need to carry forward unused annual allowance of £30k from previous years. To know if you had that you would have to look at the annual allowance for the last three completed tax years and set your Pension Input Amount (for those years) against the annual allowance. It is possible that SAUL has produced figures for your Pension Input Amounts for those years - they may be in your annual benefit statements. If you have got an online portal it may be on there somewhere.

Of course it may be more complicated than that if you have been making extra pension contributions to a SIPP in the past or if you had an especially high Pension Input Amount in the past three years (eg on a promotion). Then you maybe have to look at whether you have already used up any carry forward in previous years..

PegasusPJ

i am confused here.

Why how much my pension increased (not just what i and my employer put in it) has anything to do with how much contribution i can make?

it is like saying you need to know how much funds in a SIPP have gained to calculate how much you can contribute.

I have not and never had any other pension, and never carried forward not made any extra contribution.

ii got a promotion in the last 3 years, but that only changed that I contributed (and my employer) put more in the last 2ish year.

the DB is not final salary, it is average earning (1/79th of salary per year)

hugheskevi

Why how much my pension increased (not just what i and my employer put in it) has anything to do with how much contribution i can make?

In a Defined Benefit scheme, the employee and employer contributions usually bear little relation to the value of the benefits accrued.

In the private sector, the employer contribution depends on the funding level of the scheme - if the funding is very healthy the employer may not be contributing anything at all. If the funding is poor they may be making large deficit recovery payments.

Even in the unfunded public service pension schemes, the employer contribution is averaged across all members and includes notional past service deficit payments. An employee aged 60 who gets a large promotion will benefit far more from the scheme than an employee aged 20 who has no pay increase.

So HMRC determined that there should be a simple test applied across all Defined Benefit schemes based on the change in value of accrued benefits, net of inflation. There are multiple reasons why the calculation is neither fair nor accurate, but the more important point is that it is what the legislation requires.

DRS1

For DB schemes you cannot use the contributions paid because they may bear no relationship to the annual cost of the benefits. If the scheme is in surplus the employer may pay 0% but if it is in deficit they may pay 50%.

But perhaps it would help to read the Pension Manual. This links to the bit about DB Schemes.

PTM053301 - Annual allowance: pension input amounts: defined benefits arrangements: general - HMRC internal manual - GOV.UK

You can look at the other pages on different types of scheme here

PTM053100 - Annual allowance: pension input amounts: valuing for different types of arrangement - HMRC internal manual - GOV.UK