£40000 limit

[mutantpoodle]

is the £40000 annuanl limit aside from what an employer puts in...or it the employers bit to be added to whatever you might add

[kempiejon]

Provided you have enough relevant earnings and no defined benefit contributions the £40k is the total of all sources of contributions including those from you, your employer and the tax reclaimed back by your pension provider. AT least that's always been my understanding.

[Sobraon]

I think it is a bit more complex than this binary question, currently trying to pin down my wife's contribution to check on what she can contribute to a SIPP, here is a fact sheet from the LGPS which deals with a variety of DB pensions with DC (AVC) components. Its a bit difficult to check and the LGPS pension administrators have not been immediately able to confirm the calculation they sent in her annual statement in August.

[AF62]

As Sobraon mentions, if your employer's scheme is a Defined Benefit (DB) scheme then the maths is far more complex.

It takes the value of the pension at the end of the period (what you would get as a pension x 16 plus any lump sum) and deducts from it the value at the beginning of the period increased it by CPI. Whatever is the difference is considered to be what has been contributed to your pension. However to save you the hassle of doing this, your pension administrator should be able to send you the result of the calculation if you ask.

To any DB 'contributions' you also add any DC or SIPP contributions to get the total.

You can can carry over any unused from the previous three years, but to save doing the maths, HMRC has a useful calculator which will do it for you - https://www.gov.uk/guidance/check-if-yo ... on-savings

[DrBunsenHoneydew]

And remember the £40,000 annual allowance is not fixed. It is reduced when taxable income exceeds £110k.
Which is why it's causing a lot of trouble for senior doctors who have earnings around that figure.
Which causes the the allowance to be exceeded with small additional non-pensionable overtime earnings.
Which can cause a huge tax bill on the excess earnings over the newly reduced allowance limit (ie tax on both the overtime pay and a clawback of tax relief on pension contributions of both the employee and the employer).

[supremetwo]

And remember the £40,000 annual allowance is not fixed. It is reduced when taxable income exceeds £110k.
Which is why it's causing a lot of trouble for senior doctors who have earnings around that figure.
Which causes the the allowance to be exceeded with small additional non-pensionable overtime earnings.
Which can cause a huge tax bill on the excess earnings over the newly reduced allowance limit (ie tax on both the overtime pay and a clawback of tax relief on pension contributions of both the employee and the employer).

Surely it's the pension rules that need to be changed?
Once you have reached the limit, no further contributions are allowed either form the employer or the employee.

The country may be able to afford £110k salaries for the medics but not a high salary and a ceiling-less pension, especially with increasing longevity.

[DrBunsenHoneydew]

And remember the £40,000 annual allowance is not fixed. It is reduced when taxable income exceeds £110k.
Which is why it's causing a lot of trouble for senior doctors who have earnings around that figure.
Which causes the the allowance to be exceeded with small additional non-pensionable overtime earnings.
Which can cause a huge tax bill on the excess earnings over the newly reduced allowance limit (ie tax on both the overtime pay and a clawback of tax relief on pension contributions of both the employee and the employer).

Surely it's the pension rules that need to be changed?
Once you have reached the limit, no further contributions are allowed either form the employer or the employee.

The country may be able to afford £110k salaries for the medics but not a high salary and a ceiling-less pension, especially with increasing longevity.

There's no limit to contributions, only to relief.
It's not possible to prevent contributions beyond the limit from being paid in real time, as the limit isn't knowable until the end of the tax year.

[AF62]

Surely it's the pension rules that need to be changed?
Once you have reached the limit, no further contributions are allowed either form the employer or the employee.

With some DB schemes the 'contribution' might simply be working another year or getting a pay rise. Can't see that sacking employees when they hit £40k or putting them on a pay freeze is going to be great for business.

[supremetwo]

Surely it's the pension rules that need to be changed?
Once you have reached the limit, no further contributions are allowed either form the employer or the employee.

With some DB schemes the 'contribution' might simply be working another year or getting a pay rise. Can't see that sacking employees when they hit £40k or putting them on a pay freeze is going to be great for business.

It's certainly not great for the taxpayers that have to pay for their own pensions as well.

http://www.if.org.uk/research-posts/the ... -pensions/
The number of public sector retirees in the “Big Three” (NHS, civil service and teacher’s) pension schemes receiving pensions over £100,000 a year has increased by a staggering 320% in just seven years; up from 117 people in 2010/11 to 375 in 2017/18.
The number receiving annual pensions of more than £50,000 has more than doubled during the same period, according to latest Freedom of Information (FOI) requests by the Intergenerational Foundation (www.if.org.uk).

The number in receipt of pensions of more than the UK’s average annual salary (currently around £28,600 pa) has also increased by 46%; up from 78,000 people in 2010/11 to 115,000 people in 2017/18.

[BrummieDave]

There's no limit to contributions, only to relief.

Well said, a point often missed by many people.

[ursaminortaur]

Surely it's the pension rules that need to be changed?
Once you have reached the limit, no further contributions are allowed either form the employer or the employee.

With some DB schemes the 'contribution' might simply be working another year or getting a pay rise. Can't see that sacking employees when they hit £40k or putting them on a pay freeze is going to be great for business.

It's certainly not great for the taxpayers that have to pay for their own pensions as well.

http://www.if.org.uk/research-posts/the ... -pensions/
The number of public sector retirees in the “Big Three” (NHS, civil service and teacher’s) pension schemes receiving pensions over £100,000 a year has increased by a staggering 320% in just seven years; up from 117 people in 2010/11 to 375 in 2017/18.
The number receiving annual pensions of more than £50,000 has more than doubled during the same period, according to latest Freedom of Information (FOI) requests by the Intergenerational Foundation (http://www.if.org.uk).

The number in receipt of pensions of more than the UK’s average annual salary (currently around £28,600 pa) has also increased by 46%; up from 78,000 people in 2010/11 to 115,000 people in 2017/18.

Anyone receiving a £100,000 a year pension in 2017* either started receiving it sometime ago or is getting it via an unapproved scheme since the LTA limit for approved pension schemes in 2016/2017 was reduced to £1 million which would produce at most a £50,000 per year pension from a DB.

*A £100,000 a year pension would require the equivalent of a £2 million fund in the DB scheme in accordance with LTA calculations and the LTA limit at its maximum only reached £1.8 million which was only for the years 2010/2011 and 2011/2012.
One small possibility might be someone who had already built up a huge pension before A-day in 2006 and applied for enhanced protection - they wouldn't have been able to make further pension contributions but their deferred DB pension would grow with inflation and might if they only took it in 2017 then have grown to £2 million giving them a £100,000 pension without an LTA excess charge. Primary protection taken out in 2006 or other later protections would be subject to LTA limits and excess charges.

https://adviser.royallondon.com/technical-central/pensions/pension-protection/protecting-pre-6-april-2006-benefits/

http://taxplanner.sopherco.com/article/unapproved-retirement-benefit-schemes/

AS to the point about

It's certainly not great for the taxpayers that have to pay for their own pensions as well.

The fact that in the public sector the employer is the government (which is funded via tax) doesn't absolve that employer from making employer contributions into its employees pensions (even if in unfunded public sector schemes those are virtual contributions - and it takes way the employees own real contributions - since there is no real fund ).

[fca2019]

Provided you have enough relevant earnings and no defined benefit contributions the £40k is the total of all sources of contributions including those from you, your employer and the tax reclaimed back by your pension provider. AT least that's always been my understanding.

That's right. The total = employee contributions + tax relief + employer's contributions (+ increase in value of retirement benefits in a DB scheme).

As with any pensions question, the answer in this thread is complicated!

[supremetwo]

AS to the point about

It's certainly not great for the taxpayers that have to pay for their own pensions as well.

The fact that in the public sector the employer is the government (which is funded via tax) doesn't absolve that employer from making employer contributions into its employees pensions (even if in unfunded public sector schemes those are virtual contributions - and it takes way the employees own real contributions - since there is no real fund ).

Why not?

https://www.reuters.com/article/britain ... SL8N19G64N

In the U.K., Canadian funds own or have a stake in assets including London City Airport, the High Speed One rail link connecting London to the Channel Tunnel, the country’s National Lottery operator Camelot, Scotland’s biggest gas network and the ports of Southampton and Grimsby.

[ursaminortaur]

AS to the point about



The fact that in the public sector the employer is the government (which is funded via tax) doesn't absolve that employer from making employer contributions into its employees pensions (even if in unfunded public sector schemes those are virtual contributions - and it takes way the employees own real contributions - since there is no real fund ).

Why not?

https://www.reuters.com/article/britain ... SL8N19G64N

In the U.K., Canadian funds own or have a stake in assets including London City Airport, the High Speed One rail link connecting London to the Channel Tunnel, the country’s National Lottery operator Camelot, Scotland’s biggest gas network and the ports of Southampton and Grimsby.

Basically because that is how the schemes were setup, the government like it that way and because it would cost the government a very large amount to change it. If the government decided to change the unfunded schemes to funded schemes whether DB or DC then it would no longer be able to take the employee contributions and would have to make a real employer contribution into the new funds associated with the new schemes. However it would still have to pay for the pensions currently in payment and for the accrued pension benefits when members of the current unfunded schemes come to retire. Hence the government would either need to raise taxes or increase borrowing to fund the switch-over. During the last public sector pension review Hutton didn't look at any such move however he did, though ultimately dismissing it, look at the possibility of raiding the funds of funded public sector schemes like the LGPS and converting them to unfunded schemes.

[DrBunsenHoneydew]

AS to the point about



The fact that in the public sector the employer is the government (which is funded via tax) doesn't absolve that employer from making employer contributions into its employees pensions (even if in unfunded public sector schemes those are virtual contributions - and it takes way the employees own real contributions - since there is no real fund ).

Why not?

https://www.reuters.com/article/britain ... SL8N19G64N

In the U.K., Canadian funds own or have a stake in assets including London City Airport, the High Speed One rail link connecting London to the Channel Tunnel, the country’s National Lottery operator Camelot, Scotland’s biggest gas network and the ports of Southampton and Grimsby.

There's no real fund for central government employee schemes because it's more efficient use of the contribution money to employ it directly in government projects than in buying shares and bonds.

[gryffron]

... it's more efficient use of the contribution money to employ it directly in government projects than in buying shares and bonds.

That's a very bold statement indeed. I'd suggest that historically governments (of many nations and leanings) have a very poor record of "investments". Being far more likely to spend money on projects that are politically expedient, rather than economically expedient. Look how much cheap EU money the Spanish government has utterly wasted on useless empty airports and motorways over the last dozen or so years. They've spent a fortune, and have very little economic benefit to show for it. Just a huge pile of debt. Rather like our last Labour government!

Politicians might like to think they're great at "investing" taxpayers money in their pet projects. But history suggests most of them are not.

Gryff

[ursaminortaur]

... it's more efficient use of the contribution money to employ it directly in government projects than in buying shares and bonds.

That's a very bold statement indeed. I'd suggest that historically governments (of many nations and leanings) have a very poor record of "investments". Being far more likely to spend money on projects that are politically expedient, rather than economically expedient. Look how much cheap EU money the Spanish government has utterly wasted on useless empty airports and motorways over the last dozen or so years. They've spent a fortune, and have very little economic benefit to show for it. Just a huge pile of debt. Rather like our last Labour government!

Politicians might like to think they're great at "investing" taxpayers money in their pet projects. But history suggests most of them are not.

Gryff

The money would be spent on the projects anyway but if it didn't come from the government taking the employee contributions it would come from either an increase in taxation or more government borrowing ie the government selling more gilts on which it has to pay interest.

[Rajput1962]

1. What happens in terms of 'unused allowance' against the annual £40,000, if the annual salary is say only £25k? Let's assume that the pension contribution that the employer pays in is £5k and the employee's is £1k making a total gross annual pension contribution of £6k. I believe that the employee could pay in a further difference of £25k -£6k = £19k? (and actual SIPP contribution of 80% of this would be net £15.2k prior to any tax reclaim by the SIPP provider).

2. To keep the maths easy, if the salary and employer/employee payments were say identical for the previous year, then could the 'unused' additional gross £19k from the previous year be carried forward and made in the current tax year? i.e. gross payment into SIPP for tax year 19/20 would = £19k and carried forward from 2018/19 = £19k; hence total gross contribution for 2019/20 = £38k?

3. And same logic up to two years prior to the above if no other changes? So potentially up to £76k over 4 years into this current tax year?

I ask as i'm unclear if carry forward only applies if your basic salary (i.e. 'relevant earnings') is >£40k in the first place and also in each of the previous 3 years. (A wife of a friend has come into a small inheritance and is wondering how much could be put into a SIPP against annual earnings of around c£25k).

[DrBunsenHoneydew]

1. What happens in terms of 'unused allowance' against the annual £40,000, if the annual salary is say only £25k? Let's assume that the pension contribution that the employer pays in is £5k and the employee's is £1k making a total gross annual pension contribution of £6k. I believe that the employee could pay in a further difference of £25k -£6k = £19k? (and actual SIPP contribution of 80% of this would be net £15.2k prior to any tax reclaim by the SIPP provider).

2. To keep the maths easy, if the salary and employer/employee payments were say identical for the previous year, then could the 'unused' additional gross £19k from the previous year be carried forward and made in the current tax year? i.e. gross payment into SIPP for tax year 19/20 would = £19k and carried forward from 2018/19 = £19k; hence total gross contribution for 2019/20 = £38k?

3. And same logic up to two years prior to the above if no other changes? So potentially up to £76k over 4 years into this current tax year?

I ask as i'm unclear if carry forward only applies if your basic salary (i.e. 'relevant earnings') is >£40k in the first place and also in each of the previous 3 years. (A wife of a friend has come into a small inheritance and is wondering how much could be put into a SIPP against annual earnings of around c£25k).

In any year the max payable is that year's earnings. So carry-forward only comes into play if that year's earnings exceed £40k.