how much to contribute to pension?

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  • Spreadsheetman
    Spreadsheetman Posts: 436 Forumite
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    nine wrote: »
    Thanks, how do I claim this extra tax relief? I don't fill out a tax return... and my income has increased only recently, I was always a basic rate taxpayer...
    I think you will probably have to ask HMRC to request you complete a tax return to get the higher rate relief.


    I'd say for starters you ought to increase your contributions to avoid higher-rate tax and also chuck your bonus in to the pension. That would increase the total contribution to the current £5340 plus £2.5k plus £6.2k, so £14k. That's about 29% instead of the current 11%, a much healthier contribution at 43.
  • lulabelle1
    lulabelle1 Posts: 2,693 Forumite
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    Presumably if the pension contributions are going in to the company pension, then they are deducted at source, salary reduced accordingly and therefore no need to claim back any kind of tax relief from HMRC as you wont have paid any tax on it anyway? Or, is it a personal pension arranged independently of your employer?
  • k6chris
    k6chris Posts: 738 Forumite
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    Spreadsheetman wrote: »
    I'd say for starters you ought to increase your contributions to avoid higher-rate tax and also chuck your bonus in to the pension. That would increase the total contribution to the current £5340 plus £2.5k plus £6.2k, so £14k. That's about 29% instead of the current 11%, a much healthier contribution at 43.


    ..and continue to try and contribute 29%+ of your income each year, maximising tax relief and what your employeer will contribute. What is your current pension invested in??
    "For every complicated problem, there is always a simple, wrong answer"
  • nine
    nine Posts: 11 Forumite
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    Dazed_and_confused wrote: »
    ok so in the current tax year you will be paying tax like this,

    £50,350 less Personal Allowance £11,850 = £38,500
    £34,500 x 20%
    £4,000 x 40%

    If the £125 you are paying each month (£1500 gross per year) is in a personal pension/SIPP then this increases your basic rate amount so the end of the calculation would be

    £36,000 x 20%
    £2,500 x 40%

    So paying an additional £2,500 (gross) will mean all tax is payable at 20%.

    You get basic rate tax relief added by the pension company and inform HMRC of the pension contributions (making it clear exactly what you mean, gross, net etc) and they will arrange for the additional tax relief due to be allowed. If you do this in the year in question you will get a new tax code and pay a bit less tax each month. If you wait till the year ends and then tell HMRC you will get a refund direct from HMRC. The tax refund is never paid to your pension fund and tax relief for one tax year is never included in the tax code of a different tax year although HMRC may incude an estimate of pension relief in your tax code on the basis you will be paying the same amount the next year.

    If you make very large payments (£10k+?) you may need to complete a tax return.

    Thanks a lot - I need to sit down with this message and try to understand it!

    So I just call HMRC to let them know about my own pension contributions of £100 per month? (yes, £25 gets added to it - I can see it all in my Aviva account...)

    I guess I can do that for 2017/2018 as well....
  • nine
    nine Posts: 11 Forumite
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    Spreadsheetman wrote: »
    I think you will probably have to ask HMRC to request you complete a tax return to get the higher rate relief.

    I'd say for starters you ought to increase your contributions to avoid higher-rate tax and also chuck your bonus in to the pension. That would increase the total contribution to the current £5340 plus £2.5k plus £6.2k, so £14k. That's about 29% instead of the current 11%, a much healthier contribution at 43.

    Er... I cannot contribute 29%... I'm a single parent and up until now paying hefty after/before school childcare, still paying it this school year, then it will stop.

    My aim is to contribute 7% to pension, employer does 8%, so 15% total. I wish I could do more but won't happen before my child leaves school...

    to clarify income:

    2017/2018
    P60 £44200
    health insurance taxable benefit of £1550.

    expected 2018/2019:
    £44800 on p60
    plus the £1550 health insurance
  • Albermarle
    Albermarle Posts: 22,164 Forumite
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    lulabelle1 wrote: »
    Presumably if the pension contributions are going in to the company pension, then they are deducted at source, salary reduced accordingly and therefore no need to claim back any kind of tax relief from HMRC as you wont have paid any tax on it anyway? Or, is it a personal pension arranged independently of your employer?

    This depends on how the employer makes the deductions for the employees contribution.
    If the deduction is made after tax ( quite common also with company pensions ) then the pension company adds the basic rate relief and the employee claims back the higher rate relief .
    Only some companies deduct before tax.
  • nine
    nine Posts: 11 Forumite
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    So the company pension is with Aviva. My employer contributes £320, I add £100, and £25 gets added for tax relief - but I read somewhere that I should be able to claim extra 20% tax relief as a higher tax earner... just was wondering if that's possible without having to complete a tax return.
  • Albermarle
    Albermarle Posts: 22,164 Forumite
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    nine wrote: »
    Thanks, how do I claim this extra tax relief? I don't fill out a tax return... and my income has increased only recently, I was always a basic rate taxpayer...
    You can just call HMRC, probably simpler if you wait until the end of the tax year.
    https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
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    For last year it looks as though you will have paid 40% tax on £750 so your pension contribution (assuming you paid at least £750 gross) will allow this £750 to be taxed at 20% instead of 40% potentially saving you £150.

    There should be no need to file a return for this, just tell HMRC about the pension payments in 2017:18 and they will send you a calculation and refund of any tax overpaid last year.

    As your latest post has dropped your 2018:19 income by 4k you won't be paying any 40% tax in the current tax year.
  • nine
    nine Posts: 11 Forumite
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    Dazed_and_confused wrote: »
    For last year it looks as though you will have paid 40% tax on £750 so your pension contribution (assuming you paid at least £750 gross) will allow this £750 to be taxed at 20% instead of 40% potentially saving you £150.

    There should be no need to file a return for this, just tell HMRC about the pension payments in 2017:18 and they will send you a calculation and refund of any tax overpaid last year.

    As your latest post has dropped your 2018:19 income by 4k you won't be paying any 40% tax in the current tax year.

    Thank you! I will ring HMRC next week see what they say re 2017/2018. I paid £1200 into the pension, and got £300 tax relief (the 20%).

    That was a typo sorry - it should have been 48.8K..

    expected 2018/2019:
    £48800 on p60
    plus the £1550 health insurance
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