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  1. #1

    Pension contribution limit in retirement year

    I finally retired this year (early) and after this tax year, my pension contributions (SIPP) will be limited to the higher of either 2,880, or my earnings (I may do a small amount of part-time work).

    So in the current year I would like to maximise my pension contributions, as it will very likely be my last chance to take advantage of anything more than a relatively small pension tax advantage.

    I took voluntary severance at the same time and the university applied the taxable element of the VS cash (can't find the exact details, but let's say 25k for now) to purchasing additional pension.

  2. #2
    Annual allowance limit: My annual allowance of 40k (I have no carryovers) must not be exceeded by the sum of (a) cash payments into defined contribution schemes (employee MPAVCs and a SIPP) plus the accrual in value of my defined benefits pension (I'm with USS). I have contributed 12,779 to employer MPAVCs and nothing so far this year to my SIPP. I have a final statement of my annual allowance accrual from USS, of 10,119 (I am not sure it is accurate, even though it is only for a 6-month accrual, because my accrual for last year was 35k, but I guess I have to trust they are correct). So .. this appears to mean that I have used up 12,779 + 10,119 = 22,898 of my annual allowance. This leaves 17,101 unused annual allowance up to this point.

    Tax-free contributions limit: The limit of my tax-free cash contributions to all pensions (employer defined benefits, employer MPAVC and SIPP) is limited to my gross earnings this year, which look like they will be 32,658. My cash payments into pensions so far this year are 2,549 into my defined benefits scheme, plus 12,779 into my employer MPAVCs, which equals 15,328. This leaves 32,658 (total earnings) minus 15,328 payments so far = 17,330 I could pay into pensions and receive tax relief (hypothetically).

  3. #3
    the two numbers are quite similar ... unless my calculations (and understanding!) are off.

    I'm also completely unsure how the 25k taxable element of the VS settlement plays into all this. As far as I understand from other threads, it is "relevant earnings" for pension contribution purposes, and I also evidently avoided paying tax on this element by using it to purchase a defined benefit, but after that, my head starts to spin on its axis.

    A second pair of eyes would be greatly appreciated; no legal liability assumed.

  4. #4
    You are limited to the lower of the two figures as you say.

    DB Annual Allowance calculations are a "black art" from what I can work out, at least to an outsider.

    I would suggest asking the administrators to confirm the 2017/18 Annual Allowance figure for the DB scheme as a double check against what they have already told you.

    I'm in the LGPS and cannot correlate annual statements against AA calculation they provide. For a start Benefit Statements go from 01/04 to 31/03 whilst AA calculation is done on Tax Years.

    Also with the LGPS any AVC contibutions are included in the supplied AA value which further muddies the waters.

  5. #5
    Over the past three years, because I was trying to maximise my contributions to my DB, MPAVC and SIPP, and use up all carryover allowances, I learned how to calculate the DB accrual. USS then changed from a final salary, 1/80th accrual to a career average 1/75 accrual, and that made my head explode. This last year, though, I just haven't been able to bring myself to try to do the calculations.

    USS takes weeks to provide requested annual allowance calculations - like a lot of public sector services, I get the feeling they are understaffed and overworked.

    Although I understand that penalties are due for exceeding the annual allowance, I've never really come across any indication of how HMRC can/does check this, other than if you were randomly selected to be audited.


 

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