Topping up DC pension pot and carry forward question

grn99

We're planning to top-up my wife's pension pot that hasn't had additional contributions for some time but she does contribute to a work pension (DC). The plan is to top-up to utilise her full allowance for this FY (salary well below the 60K allowance). I assume this figure would be her salary minus her contributions but not taking her employer contributions into account?

I believe tax relief will be at source by the provider (SW/CMG) for these additional contributions at 20% (she's a basic rate taxpayer).

I then thought about doing the same for prior 3 years, where the full allowance (up to her current salary) were not fully utilised. This is where I am less certain as to how this works….So how does this work in practice…. Does the provider automatically utilise the oldest of the past three years, or would they add those additional funds to the current year (losing the tax relief), requiring us to do something to ensure carry foward is applied? Are HMRC involved to make this happen?

Thanks in anticipation for any help.

mrklaw

if her salary is below 60k then carry forward isn’t a consideration. She’ll hit her salary before she hits this years standard allowance

grn99

Ahhh, okay. Many thanks.

Grumpy_chap

Personal contributions to pension cannot exceed gross qualifying earnings in the tax year.

GrumpyDil

The overall limit is earnings up to 60k but note it also includes employer contributions.

grn99

https://forums.moneysavingexpert.com/discussion/comment/82030164#Comment_82030164

So, if one is topping up this year's contributions to Gross Salary maximum, do we need to take employer conts into consideration so as to not over contribute and lose the tax relief?

GrumpyDil

Yes, if the employer has paid say 10k of employer contributions then the limit would be 50k

QrizB

So, if one is topping up this year's contributions to Gross Salary maximum, do we need to take employer conts into consideration so as to not over contribute and lose the tax relief?

No, I don't think you do considering her salary is "well below £60k", not unless her employer is unusually generous.

There are two different limits; the tax relief limit (gross relevant earnings) and the annual allowance (£60k pa with carry-forward of unused allowance from three previous years).

Yes, if the employer has paid say 10k of employer contributions then the limit would be 50k

That's not necessarily true. Employer contributions can also make use of allowance carry-forward.

Even if the OPs wife earns £58k and her employer contributes £10k, she's likely to have enough carry-forward available to accommodate a £68k contribution this year.

grn99

https://forums.moneysavingexpert.com/discussion/comment/82030295#Comment_82030295

Thanks for that info. E’e Yearly Contributions are circa 3.7k with E’r conts about 1/3rd of that figure. Salary is high 20’s k. If I don’t take E’r conts into account, I believe we can top-up the SW/CMG pot with £18.8k in what will be her final working year, without exceeding gross salary.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82030565#Comment_82030565

Are her workplace contributions to workplace pension, made after tax or before? Most workplace pensions either take contributions before tax is applied, or operate a salary sacrifice scheme. In both cases no further tax relief is added by the pensions provider ( as no tax has been paid on them ) .

Personal pensions ( and some workplace pensions) do add tax relief as the contributions come from after tax pay.

A second point is that you will need to check with her old pension that they will still accept new contributions.

grn99

https://forums.moneysavingexpert.com/discussion/comment/82031502#Comment_82031502

Interesting points. I've looked at a wage slip and believe the Income tax being charged (at 20%) is the monthly gross less the personal allowance (1225L). I was expecting the pensions conts to have been taken into account before the tax was calculated. The employer's choice of provider is NEST. Does this mean the tax relief will be applied by the provider despite it being an employment pension? (For clarification, this NEST pension is separate to the pension we are looking to top-up which is SW/CMG that we took out and contributed separately and prior to her working with this employer.) We will check, but do not anticipate any issues with another contribution to SW/CMG IPP plan.