HOW MUCH can I pay into a pension?

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In this video, going over the tricky question of - how much can I actually pay into my pension?
0:00 - How much can I pay into a pension?
0:45 - The types of pension contributions. - For individuals
1:43 - What are relevant earnings? - For individuals
3:30 - How individual tax relief is applied - For individuals
5:35 - What about carry forward?
6:09 - The Annual Allowance - Money Purchase
6:45 - The Annual Allowance - Defined Benefit Schemes
8:41 - Tapered Annual Allowance
9:25 - Money Purchase Annual Allowance
10:12 - Where do Employer Contributions fit?
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References:
Annual Allowance
www.gov.uk/tax-on-your-privat...
Relevant Earnings
www.gov.uk/hmrc-internal-manu...
Wholly and Exclusively
www.gov.uk/hmrc-internal-manu...
Money Purchase Annual Allowance - Trigger Points
www.gov.uk/hmrc-internal-manu...
A BORING BUT IMPORTANT DISCLAIMER:
This channel provides information on general financial planning. It is for educational purposes only and does not constitute financial advice. The information based is believed to be accurate and currently however should not be solely relied upon. Unless you take regulated financial advice only YOU are responsible for your own decisions therefore we cannot be responsible for any action or inaction you take. Please take advice specific to you before making any decisions. Principles Personal Finance is an educational channel and is not affiliated with my employer. As such views are stated are individual and should be seen as such.
Investment involves risks. The investment return and principal value of an investment may fluctuate so that an investor's portfolio, when redeemed, may be worth more or less than its original value. Past performance is no guarantee of future results. The information provided in this presentation has been compiled from sources believed to be reliable and current, but accuracy should be placed in the context of the underlying assumptions.
A WARNING
There are some scams on KZbin where a profile image is copied and then used to promote cryptocurrency scams and all that nonsense. I will never, ever, contact you selling any investment product or service. I would never do that, am not allowed by regulation and it goes against the intention of this channel to educate and inform.

[@johndoh539]

And the government wonder why people are not saving enough into pensions. If only they would simplify pensions and then just LEAVE THEM ALONE.

[@PrinciplesPersonalFinance]

I understand your views on this John. Rules are painfully complex!!

[@rufdymond]

My ex-wife is a Pensions Manager -she was forever studying to understand rule changes…..makes my head hurt just listening to this.

[@ianh.6825]

Pension Carry Forward Calculators are available online. Just input details of your pay (relevant earnings) and pension contributions, not forgetting your employer's, for this and the previous 3 years and it will work out how more more you can pay in, up until the end of the current tax year.

[@petermorris3665]

Thanks for that. Its rare nowadays, on this subject anyway due to my age/experience, that I learn something new but I did not know that benefits in kind counted towards 'relevant earnings'. Hopefully, I will make the most of the increased annual allowance in this FY before it is, potentially, reduced again in a year or 2......

[@PrinciplesPersonalFinance]

Thanks for watching Peter, glad you found the video useful! 🙌

[@gonnahavemesomefun]

Great video. I slap in £60k each year into my pension since the change (salary sacrifice). From a net point of view I "lost" around just £2,200 out of my wage and in my pension drops £5k each month through employer contribs, NI and tax savings. To be clear, I am quite old and was late to the pension party so I need to do this. Save into a pension kids!

[@user-gz2os8mi9h]

How old is old? You seem to be doing well.2200 BY 12 months is £26400 pounds per year..How much is your employer contribution?Is this a DC or DB pension scheme?How about if done through SIPP without employer contributions?

[@gonnahavemesomefun]

@@user-gz2os8mi9h yeah remember that yearly figure is the net, so the gross is 40%+. It’s a DC. My employer puts in 10%. I just turned 50. In the climate we are in it feels like no job is safe so I am pumping as much into my pension whilst I can. And at the same time saving £2k a month to overpay my mortgage to have it paid in a couple of years, 10 or so years early. I’ve made sure my teen kids are educated, they have a bigger pension than I did at 40!! SIPP would be a lot lower because I wouldn’t get my employer and NI savings. And as this video describes you’ve then got to go the route of ensuring you get the tax offset. My pension comes out pre-tax so is a lot simpler. I am just about doing ok, but when you consider a £500k pot only provides £25k/pa before tax there’s still a way to go to be comfortable whilst having non-pension savings too. How are you doing? Good luck out there.

[@johnporcella2375]

Companies can keep paying into an individual's pension beyond 75 years of age for the individual. The company is not limited by the nett relevant earnings rule. A question: is the amount of unused relief available for use by the limited company employer by carry forward the difference between the Annual Allowance less what pension contributions were paid in total in that year? Or is it limited to what relief can be carried forward by the individual? I strongly suspect the former, but should like confirmation. Thanks in advance!

[@user-jd2ox1nj3s]

Thank you so much for your sharing! I have few questions hope you can help for giving advice: 1) About the annual allowance £60k, is it a net income amount that we can put into SIPP, or it includes the amount from tax relief (£48k net from income + £12k from tax relief)? 2) If £60k includes the amount of tax relief, for a higher rate taxpayer, he should only put £36k net in SIPP? Is my understanding correct? 3) Further to point 2), will the net amount that we can put into SIPP is : £60k - tax relief amount - the contribution from employer and employee ? Is it correct? 4) If I put more than £60k in pension this year, let's say £70k. Then the additional £10k can be claimed by the carry forward annual allowance. In this case, how can I inform HMRC on this carry forward annual allowance be used? 5) For the annual allowance, will we have it even though we did not open any SIPP account in perious years? I mean that if I did not open any SIPP account or claimed any annual allowance last year, can I still carry forward the last year annual allowance to this year? Sorry for much questions and thank you for your advice in advance!

[@andycampbell193]

Love the content! So I have 2 questions if I may. If you earn £100k, you could put £50k in pension and “earn” £50k so still get child benifit. But if you earned £100k, could you put in £60k leaving you earnings of 50k? If that is not allowed (earnings < pension contributions) could you use any carry forward allowance to still get your earnings to £50k? Many thanks if you can guide😊

[@Annamacko988]

Thanks for the amazing video, I got in stock with the help of but-Astro.

[@user-gz2os8mi9h]

How about if one is paying close to 30 grand per year just on income tax and NI ?What would be a reasonable pension contribution per year especilly when one is late to the party?

[@MrKlawUK]

So at source is not really at source it’s not until after taxes have been applied; and net pay is not really net pay it’s gross pay. Simple!

[@michalostapowicz158]

Thank you so much! Love your content: very helpful. I have a question about pensions: the FSCS is only up to £85k. Does it mean that it'd be prudent to split my pension to multiple providers (and try not to exceed that sum)?

[@PrinciplesPersonalFinance]

Hi, thanks for watching. That is a surprisingly complex questions as it depends entirely on the assets within the pension. Typically most pensions are invested but it depends if they are insured funds or not. (Basically a ton of caveats depending on your position.) Pete from Meaningful Money was a mentor to me starting out and he's done a great video which goes into the weeds of it all, I'd suggest giving it a watch 👇 kzbin.info/www/bejne/j5TNfJ-udr54e6c

[@rinakaur7245]

How long does it usually take for pension administrator to get basic tax relief from HMRC?

[@bSMith266]

Long time watcher, thanks for great info, you always seem to distill the important info into an easy to understand video. Thanks. I have a question though, my situation is as follows: 1. I have 2.5 years of full time employment (NIC) in the UK, and 8 years abroad. 2. Hoping to leave the UK in 5 years to work abroad, so I will have less than 10 years of NIC when I leave. 3. I do not want to retire in the UK. 4. I have a mortgage. Is it worth me paying into my pension scheme? I assume I wont be able to claim a state pension upon retiring, as I will be living abroad, and have less than 10 years NIC.

[@PrinciplesPersonalFinance]

Hi, thanks for watching and your kind words. Very grateful for your support! I think unfortunately this is one of those which I can't really answer sadly. There are a LOT of things I have to proof (rightfully so) before giving specific advice to an individual. My expertise on overseas pensions is also very limited and the taxation position varies depending on the legislation in question. If i was in the position to advise, some of the areas I would consider checking are: - The tax position for withdrawals from the UK pension where you retire. - If you have been in the UK for other years and could consider voluntary contributions to get you to 10 years (noted 2.5 years now and 5 years remaining.... can the other years be filled?) - If where you are retiring to overseas benefits from inflation increases on the State Pension. I'm sorry i cannot be further assistance. This is an area where it would be better checking the details and trying to get specific advice from an adviser who understands the legislation position where you retire. Wish you well 🙌

[@bSMith266]

@@PrinciplesPersonalFinance Thanks so much for your time to respond. Keep up the good work

[@stephenhargreaves9031]

Great video. Quick question. I am thinking about using savings to ramp up my Personal Pension pot, so can put in all my gross earnings. The figure would be around 30K per year. So I would pay in 24K and get 6K in ta relief added to my pot. This effectively means I get tax relief on the Personal Allowance of £12,570 which I haven't paid tax on? This seems to good to be true, or am I missing something?

[@PrinciplesPersonalFinance]

Hi Stephen, I can't give you any advice on your personal situation so please don't construe this comment as an answer to your personal tax position, as it isn't. I can tell you that in general, it is possible and within the rules to use up to 100% of relevant earnings as a contribution (with various other conditions as outlined in the video) and via a relief at source scheme potentially receive 20% tax relief. Even if that was to sit within the personal allowance. It's the same structure as those who don't have any relevant earnings can input £2,880/£3,600 after tax relief. In that regard relief at source gives what some could consider a potentially unfair advantage against net pay. If in doubt, please seek advice specific to you. Thanks for watching.

[@andyasia]

Do you need to have relevant earnings back in 2020/21/22/23 to carry forward the £40k ? For example, if I had an open SIPP but made no contributions in 2021/22 but I had an income of £10k, can I, in 2023/24, add £40k to my SIPP for 2021/22 or am I limited to £10k ? Does this make a difference if my employer makes the contribution directly ? (I own the company) so that I could use £60k for this year and £40k for 2021/22 ?

[@PrinciplesPersonalFinance]

Hi Andy, thanks for watching. I'll have to speak generally as I can't give anything which may be seen as specific advice. In the example above, this highlights the key difference between individual and employer contributions. - Carry forward does not need corresponding relevant earnings for previous tax years to be allowable, the main thing is to have been a member of a registered pension scheme. For example, an individual could have had no relevant earnings for last tax year, but still use their full carry forward for THAT YEAR, this year. Subject to having sufficient relevant earnings in THIS YEAR to allow that (if it's individual contributions.) - As far as the difference between individual and employer contributions. Employer contributions are made via the 'wholly and exclusively' rules as mentioned in the video. Employer contributions do not need relevant earnings as it is only individual contributions which need relevant earnings to qualify for tax relief. (Basically relevant earnings for additional individual contributions and wholly and exclusively rules for employer) As always, I'm required to say if in doubt please get advice specific to you! 🙌

[@andyasia]

@@PrinciplesPersonalFinance I appreciate the response, thanks. You'd be amazed that this precise point is not covered in simplicity, anywhere that I have found, yet so many business owners have generally and through covid specifically, not maximised their SIPP options. From multiple resources, I was fairly confident that the 'wholly and exclusively' rules for employer contributions would cover any shortfall but as I suspect the landscape will change drastically after the next election, in many ways brought on by the increase to £60k and the removal of the lifetime cap, I am looking at getting my ship more in order this year. If I may beg a supplemental question, if someone earns under the personal allowance, say the employee earns £10k and has a £12570 allowance, are they able to benefit from the 20% pension uplift even though they have not paid any tax to begin with. I am aware that a child for instance can pay in £2880 and claim £720 back but does that principle extend to the whole of the personal allowance, namely £12570 ? The logic here is that if they can benefit from it, then this beats even employer contributions and truly is "free" money !

[@PrinciplesPersonalFinance]

@@andyasia Hi Andy, on the supplementary question. I'll have to answer generally but it is possible to claim tax relief at 20% up to relevant earnings, even if relevant earnings sit within the personal allowance. This creates an imbalance in the rules arguably between relief at source and net pay for low earners which there has been talk of them considering trying to equalise. Only thing to be mindful of is the tax efficiency of pension contributions are as much about the effective rate of tax when drawn as much as when are received at the start. That may not be an issue for an individual depending on their tax position but always worth bearing in mind. Thanks for watching 👍

[@user-ms1ni4wz1r]

If I am a higher rate tax payer, and want to make additional contributions to a SIPP, then I will need to do tax self-assessment if I am not doing it today?

[@PrinciplesPersonalFinance]

Hi Philip, thanks for watching. I wasn't quite sure what the comment on not doing it today meant. As far as general tax relief and how this applies it depends on how the contribution is made (which I appreciate isn't the best answer but it's the only accurate one.) As it depends if you have a relief at source scheme or if the pension payment is made from the employer. Further details below 👇 www.gov.uk/tax-on-your-private-pension/pension-tax-relief As a general rule, if an individual is making pension contributions themselves and it is a SIPP which has tax relief via 'relief at source' then to claim back higher rate they have to do this via self-assessment or via contacting HMRC directly. As always, if in doubt please get advice specific to you 👍

[@katscotty]

Thank you George! I am a non earner getting a smallish company pension only - I discovered I can pay in £2880 per year into a SIP and receive £720 in tax relief - is this correct and if so is it possible to put in another £2880 for last year where my situation was the same. Thanks so much!

[@PrinciplesPersonalFinance]

Hi, thanks very much for watching. Grateful for this and your comment! 🙌 If you have no other income for the year, it is possible to still pay £2,880 into a SIPP and get tax relief so after relief it's £3,600 into the pension. (Assuming being UK tax resident and under the age of 75.) Sadly, you can't carry back previous years if you didn't have income for that year, it's a use it lose it allowance.

[@katscotty]

@@PrinciplesPersonalFinance Thanks for taking the time to reply George!

[@PrinciplesPersonalFinance]

@@katscotty you're welcome 👍

[@stephenlaverty6266]

Hi great video, just asking for a friend.....I always wondered this, and as you say the £60 K annual allowance is only a limit on the amount you get tax relief on, could someone with a spare million quid stick that in a pension all in one go with the idea of avoiding IHT (they're not really concerned about tax relief) Thanks

[@PrinciplesPersonalFinance]

Hi Stephen, thanks for watching. The answer to this is 'potentially' yes, however in practice probably no. Although the regime allows contributions that don't attract tax relief to be made, pension providers don't have to accept them - and many don’t, refunding any that are subsequently found to be excessive. It's also worth noting that, even where personal contributions don't attract tax relief, they still count towards the individual's annual allowance which means potential tax charge for large contributions such as in that example. There is also a '2 year rule' around pension contributions in ill health which can catch people filling their pension for IHT purposes who know they are in ill health. That doesn't necessarily relate to your question as you could have £1m to throw into the pension and not be in ill health. Although most who would be doing that for IHT would probably have that focus. Never simple sadly!

[@stephenlaverty6266]

@@PrinciplesPersonalFinance Many thanks i didn't think it was that easy, now back to making that million quid lol

[@chriscunningham1348]

Saw an advert for equity release on TV last night and I just thought that just looks like a massive con

[@pm5095]

Great video! I would be grateful if you could advise what's best for me..37 year old.. started pension contributions age 27, currently 45k pension pot. I earn 38k and i sacrifice 18% monthly from my salary into my employers pension scheme ( the biggest i am allowed) they pay 5% only. Am i doing the right thing? Or shall i decrease my contributions to 5% or 10% and invest the remaining in a SiPP or stocks ans share isa or lisa? So confused here😮

[@slayerrocks2]

You're doing great. Salary sacrifice wins every time over SIPP, as you save on National Insurance as well as tax. If your reason for looking at SIPPs is for flexibility of what you invest in, you could do partial transfers. Here, you request your SIPP provider to apply to your occupational pension provider for a sum to be transferred. Leaving enough in to keep it running for future contributions. One thing you shouldn't overlook is where your pension is invested. Often, work schemes put you in a default, "low-risk" fund. The returns on this will not be great. Someone as far from retirement as you should be invested more/all in equities (shares and indexes), as the returns are higher, and the risk is reduced by time. ISAs don't get tax relief at source, so, £100 invested into an ISA costs you £100. £100 into a salary sacrifice pension (at basic rate) will only cost £72, as you effectively save 20% tax and 8% NI. ISAs, however, have no age restrictions on access. So, if you were looking to retire earlier than allowed by pension rules, you could live off them until your pension can be accessed. You could also use the money in emergencies, should something come up. Pensions are locked away until 57, currently. I'm not a financial advisor. There are resources available to learn from. KZbin is one of them.

[@ant5595]

But for pension contributions to be tax deductible they have to be made to a company pension scheme, as I understand it. Paying direct from a company account into a pension otherwise is classed as drawings and limited to 100% of salary.

[@PrinciplesPersonalFinance]

Hi, there are a few things there which aren't quite right, or perhaps maybe lost a bit in understanding or interpretation. Pension tax relief isn't related to only pension payments directly from an employer. The statement on drawings doesn't appear right either. I'd suggest getting advice specific to you if you are doing any sort of planning without support.

[@ant5595]

@@PrinciplesPersonalFinance This was advice from my accountant, yes I'm still not clear on the situation for contributions to my pension direct from company account as a director.

[@shilpamaishari6976]

If I have net rental income of £50k then how much maximum can I contribute to the pensions?

[@PrinciplesPersonalFinance]

Hi, thanks for watching. I'm afraid I can't give anything definitive here are it's too specific to circumstances. Rental income which is held individually is not considered relevant earnings. This is mentioned in the video and please see below 👇 www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100 If the rental income is through a LTD then the 'wholly and exclusively' rules come in. Please speak with an Accountant to clarify what you can contribute in that instance.

[@chriscunningham1348]

Just wondering what are the pros and CONS

[@Homelessnomad]

Can you put money into a pension if unemployed?

[@PrinciplesPersonalFinance]

Hi, if you are a UK resident you can put in up to £3,600 after tax relief (£2,880 net) even without any relevant earnings. Up to the age of 75. As always, if in doubt please seek advice specific to you.