Reducing pension taper reduction

choccielover · 18 March 2019 at 10:13PM

So I’m pretty much at the point of having maxed out my pension contributions now and used up all my carry forward, but my allowance is now reduced due to tapering.

I’ve read and read up on this and seem to be confusing myself rather a lot.

Can someone explain to me why pension contributions made other than through Sal sacrifice can be deducted to compute threshold pay but Sal sacrifice added back??

It looks like I’ll have to reduce my contributions next year as I think I’m tapered down to £22k. Or can I change the way I pay my pension (can move to non Sal sacrifice...) and will that help

Cheers

Marcon · 18 March 2019 at 10:52PM

Is it possible you've mixed up threshold income and adjusted income, or perhaps forgotten that contributions made by salary sacrifice are classed as employer contributions?

The annual allowance of £40,000 may be tapered if your ‘threshold income’ (annual income before tax, less any personal pension contributions, and ignoring any employer contributions including those made via salary sacrifice) is over £110,000.

If your threshold income is over £110,000, you need to check if your ‘adjusted income’ (annual income - broadly all income that you are taxed on - before tax, plus the value of your own and any employer pension contributions) is over £150,000. If it is above £150,000, the annual allowance will reduce by £1 for every £2 that your ‘adjusted income’ exceeds £150,000.

MichelleUK · 19 March 2019 at 8:22AM

choccielover wrote: »

So I’m pretty much at the point of having maxed out my pension contributions now and used up all my carry forward, but my allowance is now reduced due to tapering.

I’ve read and read up on this and seem to be confusing myself rather a lot.

Can someone explain to me why pension contributions made other than through Sal sacrifice can be deducted to compute threshold pay but Sal sacrifice added back??

It looks like I’ll have to reduce my contributions next year as I think I’m tapered down to £22k. Or can I change the way I pay my pension (can move to non Sal sacrifice...) and will that help

Cheers

"The threshold income measure helps to provide certainty for individuals with lower salaries who may have one off spikes in their employer pension contributions. If the individual’s net (taxable) income is no more than £110,000 they will not normally be subject to the tapered annual allowance. However, anti-avoidance rules will apply so that any salary sacrifice for pension savings set up on or after 9 July 2015 will be included in the threshold income calculation."

Quoted from:
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tapered-annual-allowance/

Another useful article (see the Karen example as well as the avoidance section):
https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/tapering-of-annual-allowance-for-high-incomes/

choccielover · 19 March 2019 at 2:14PM

well i'm definitely in reduced AA territory and after thinking about it some more i think i understand now the pension contribution part that confused me.
i have calculated both threshold (which i breach) and adjusted (which is over £150k and so means a reduction is applied)
i've looked at my taxable income and it was less due to salary sacrifice for childcare vouchers (which i think are allowable??) and so that's given me a little more carryforward than i thought. i'm now even more annoyed by my company pension not taking a payment in the correct month last year as that lost carry forward is proving rather expensive but as it was on a salary sacrifice basis i dont think that the argument it was deducted in the correct year stands any weight.

i've reduced a lump sum payment i was going to make this month so i can conserve some rollover to enable me to take the maximum company contribution next year but will have to take some advice i think on how to go forwards.

i'm still a fair way off retirement and so putting £22k a year into my pension doesn't seem enough.

thank you for the help with clarification

Reducing pension taper reduction

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