Whole salary into pension

Albermarle

So even though £12,750 was below the income tax threshold and I also paid national insurance on this sum, I can still put the whole lot into my pension for the tax relief?

As others have indicated, there is no relationship between how much tax you actually pay, and how much tax relief you can get on pension contributions.

Having a DB pension complicates things I believe. The annual increase in the value of that counts toward your annual amount that you can pay in to a pension and claim tax relief on it.

This is not correct. The only effect of a DB pension on tax relief is that normally the employee makes a contribution to the DB pension and gets tax relief on it, so that contribution would have to be taken into account when calculating the max tax relief still available.

prowla

Just a note (and probably not applicable to this particular case), but your untaxed salary sacrifice contributions are limited to £10k/yr if you have ever taken taxable income out of a pension (excluding State Pension).

Bimbly

Just a note (and probably not applicable to this particular case), but your untaxed salary sacrifice contributions are limited to £10k/yr if you have ever taken taxable income out of a pension (excluding State Pension).

It is actually applicable. And, again, a different question.

I am aware of it, but had forgotten it had gone up to £10k until a friend mentioned it a couple of weeks, so I'm quite pleased.

kermchem

The reduction of the £60K Annual Allowance to the £10K money purchase annual allowance only applies if you have taken taxable pension from a defined contribution pension. That is, not if you have only taken DB or a tax free lump sum from DC.

Bimbly

https://forums.moneysavingexpert.com/discussion/comment/82073494#Comment_82073494

You are correct.

QrizB

The reduction of the £60K Annual Allowance to the £10K money purchase annual allowance only applies if you have taken taxable pension from a defined contribution pension.

And even then, I think it's only for benefits that have been taken flexibly?

Using a DC pension to purchase a lifetime annuity wouldn't do it.

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82073506#Comment_82073506

Correct - and as you rightly point out, it has to be a lifetime annuity to avoid triggering the MPAA. A fixed term annuity is also counted as 'flexibly accessing'.

Marcon

Suffice to say that I have massive amounts of headroom with carry forward to accommodate putting a lump sum into my DC pension.

If you are salary sacrificing down to minimum wage, are you sure you have adequate remaining earned income (ie post-sacrifice) in the tax year in which you intend to make the lump sum contribution to your DC pension?

You can carry forward unused allowance from last 3 years.

….but need to have sufficient earnings to cover the amount you make by way of personal contributions - something which catches people out time and again. It may be fine here, but OP needs to double check.

tigerspill

What I did was put the most I could into my pension via salary sacrifice (down to minimum wage). Then I opened an HL SIPP and put the rest into that and got the tax back. I kept this in cash. I did this for both my wife and myself. I used pretty much all of my annial allowances including carry forward (the annual allowance was much less then than it is now)

My wife stopped work early and drew it all out tax free before she started taking her DB pension. I had to pay some tax on the way out.

NormalNorman

yes wife has done this periodically. Salary sacrifice to min wage then dump remaining salary into sipp for further tax relief. Obviously not as beneficial with no employer contribution/NI savings on that portion but still really accelerates contributions/growth.