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• etienneg
• By etienneg 18th May 17, 1:50 PM
• 57Posts
• 19Thanks
etienneg
Can I please check if I have understood by way of a rough example?

In the tax year that someone retires, suppose their salary for the part of the year before retirement is £10,000. They pay £750 into their employer's pension scheme by salary sacrifice. If I understand correctly, this means that their 'relevant earnings' for pension purposes is £9,250. The employer adds £550 in pension contribution, making a total amount into the pension scheme of £1,300.

In the same tax year, the person opens a SIPP and pays in £6,360. HMRC will add £1,590, making a total amount of £7,950 in the SIPP.

Taken together, total additions to the pensions is then £9,250, or 100% of relevant earnings, and so is allowable. Is this calculation method correct?
Page 1
• bigadaj
• By bigadaj 18th May 17, 9:34 PM
• 10,815 Posts
• 7,138 Thanks
bigadaj
First thing to consider is that you can't salary sacrifice below minimum wage so that is a factor.

apart from that consideration then your calcs look fine.
• Linton
• By Linton 18th May 17, 9:58 PM
• 9,386 Posts
• 9,519 Thanks
Linton
Can I please check if I have understood by way of a rough example?

In the tax year that someone retires, suppose their salary for the part of the year before retirement is £10,000. They pay £750 into their employer's pension scheme by salary sacrifice. If I understand correctly, this means that their 'relevant earnings' for pension purposes is £9,250. The employer adds £550 in pension contribution, making a total amount into the pension scheme of £1,300.

In the same tax year, the person opens a SIPP and pays in £6,360. HMRC will add £1,590, making a total amount of £7,950 in the SIPP.

Taken together, total additions to the pensions is then £9,250, or 100% of relevant earnings, and so is allowable. Is this calculation method correct?
Originally posted by etienneg
Your calculation is wrong in that employer contributions dont count against the relevent earnings limit. Also salary sacrifice contributions are actually employer contributions. Your relevent earnings therefore do not include the Salary Sacrifice amount. I assume that when you say the salary is £10000 with £750 paid by SS, you actually mean the salary is £9250 and that in return for you taking a lower salary your employer adds £750 to the employer contribution.

So you can pay 80% of £9250=£7400 into your SIPP which HMRC increases by £1850 making a total of £7400+£1850+£750+£550=£10550 in your SIPP.
• bigadaj
• By bigadaj 19th May 17, 1:35 PM
• 10,815 Posts
• 7,138 Thanks
bigadaj
Your calculation is wrong in that employer contributions dont count against the relevent earnings limit. Also salary sacrifice contributions are actually employer contributions. Your relevent earnings therefore do not include the Salary Sacrifice amount. I assume that when you say the salary is £10000 with £750 paid by SS, you actually mean the salary is £9250 and that in return for you taking a lower salary your employer adds £750 to the employer contribution.

So you can pay 80% of £9250=£7400 into your SIPP which HMRC increases by £1850 making a total of £7400+£1850+£750+£550=£10550 in your SIPP.
Originally posted by Linton
Don't disagree and I was going to comment but the total into the pension is the same, they've just split the £9250 from the £750 as their contribution and then added the employer contribution of £550 on top.
• Linton
• By Linton 19th May 17, 2:22 PM
• 9,386 Posts
• 9,519 Thanks
Linton
Don't disagree and I was going to comment but the total into the pension is the same, they've just split the £9250 from the £750 as their contribution and then added the employer contribution of £550 on top.
Originally posted by bigadaj
The key difference was that the OP was failing to make all the pension contribution he/she could have made as he/she was including the employer's £550 against the relevent earnings limit.
• etienneg
• By etienneg 22nd May 17, 4:38 PM
• 57 Posts
• 19 Thanks
etienneg
Thanks for the replies. Whilst I knew that all contributions made by salary sacrifice are classed as employer contributions, I hadn't realised that employer contributions didn't count towards the limit.

Why, oh why, are these things made so complicated?!
• kidmugsy
• By kidmugsy 22nd May 17, 10:26 PM
• 10,555 Posts
• 7,230 Thanks
kidmugsy
Why, oh why, are these things made so complicated?!
Originally posted by etienneg
Because, by and large, MPs and civil servants aren't affected.
• mgdavid
• By mgdavid 23rd May 17, 9:56 AM
• 5,594 Posts
• 4,916 Thanks
mgdavid
Thanks for the replies. Whilst I knew that all contributions made by salary sacrifice are classed as employer contributions, I hadn't realised that employer contributions didn't count towards the limit.

Why, oh why, are these things made so complicated?!
Originally posted by etienneg
I wouldn't complain too hard as it works in your favour....
The questions that get the best answers are the questions that give most detail....
• eyeonretirement
• 23rd May 17, 7:19 PM
• 22 Posts
• 3 Thanks
eyeonretirement
I just red this from http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/pension-contributions-the-basics/

"Individual, employer and third party contributions all count towards the annual allowance, MPAA and the tapered annual allowance."

So I am assuming employer contributions by salary sacrifice DO count towards the £40,000 limit eg if I earn 42,000 AFTER a salary sacrifice (which results in my employer contributing say 5,000) then all I can now put in is (40,000 - 5,000) x 0.8. Is that not so?
• Linton
• By Linton 23rd May 17, 7:57 PM
• 9,386 Posts
• 9,519 Thanks
Linton
I just red this from http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/pension-contributions-the-basics/

"Individual, employer and third party contributions all count towards the annual allowance, MPAA and the tapered annual allowance."

So I am assuming employer contributions by salary sacrifice DO count towards the £40,000 limit eg if I earn 42,000 AFTER a salary sacrifice (which results in my employer contributing say 5,000) then all I can now put in is (40,000 - 5,000) x 0.8. Is that not so?
Originally posted by eyeonretirement
Correct...

Though there is another quirk: The earned income limit must be used in the current tax year, whereas anything left over from the £40K limit can be carried forward 3 years.
• eyeonretirement
• 23rd May 17, 8:38 PM
• 22 Posts
• 3 Thanks
eyeonretirement
So "The key difference was that the OP was failing to make all the pension contribution he/she could have made as he/she was including the employer's £550 against the relevent earnings limit."

was incorrect?
• Linton
• By Linton 23rd May 17, 10:10 PM
• 9,386 Posts
• 9,519 Thanks
Linton
So "The key difference was that the OP was failing to make all the pension contribution he/she could have made as he/she was including the employer's £550 against the relevent earnings limit."

was incorrect?
Originally posted by eyeonretirement
No, there are two separate limits with different rules. The one which was discussed first in this thread and is what your quoted paragraph was about relates to earned income. The other which was discussed most recently is £40K. The maximum you can put into your pensions in a year is the lower of the two limits.
• eyeonretirement
• 24th May 17, 11:18 AM
• 22 Posts
• 3 Thanks
eyeonretirement
I understand the two limits and the lower of the two being the one to use. It was if employer contributions ie salary sacrifice count towards that limit?
Last edited by eyeonretirement; 24-05-2017 at 11:19 AM. Reason: punctuation
• Linton
• By Linton 24th May 17, 11:55 AM
• 9,386 Posts
• 9,519 Thanks
Linton
I understand the two limits and the lower of the two being the one to use. It was if employer contributions ie salary sacrifice count towards that limit?
Originally posted by eyeonretirement
Employer contributions count towards the £40K limit but not the earned income limit.
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