What Everyone Gets WRONG About The ANNUAL ALLOWANCE And CARRY FORWARD

[@MeaningfulMoney]

What do you think about this video? If you liked it, please do me a favour and subscribe to the channel. This helps the growth of the channel massively. Thank you! And if you are wondering what to watch next, I recommend "3 Retirement Planning EXAMPLES": kzbin.info/www/bejne/nXzcY2R9rZuJqLc

[@gaurasrspublishing]

Genuinely excellent video clarifying a lot of common misconceptions for me. Also my irritation is with the "relevant earnings" caveat by HMRC; as a Landlord earning a living from that business (properties in my own name) I am effectively severely limited in the pension contributions I can make, yet those same earnings are fully relevant by HMRC when it comes to taxing me, clearly a double-standard from HMRC.

[@davidwebb2318]

@@gaurasrspublishing I agree. HMRC don't treat running a property rental business as a normal business. They have taken it upon themselves to consider it different to every other business. The government haven't put this right and yet they wonder why there isn't enough property for people to rent at a reasonable price! They need someone with some common sense at the Treasury to sort this out and put HMRC straight on how they should deal with property rental.

[@rowanhowsefinancialplanner6655]

Nice one Pete, I'm and IFA in London and often get asked by high earners and accountants, should I/my client opt out of my employer pension scheme due to tapered and adjusted tests or take as an income. Of course each case is individual, but your example case studies are really good from a cold hard numbers point of view. Would be good to see a video on this, I know you recently did it for LTA- so it would be something similar.. Cheers Rowan

[@geztinsdale]

you just saved my bacon, never ever has anyone explained the carry forward figure in relation to annual salary - thank you and subscribed

[@Episkopi2008]

Excellent. Clear. Loved the bit about 'business owners'.

[@paulstewart7754]

Hi Pete - great video. I’ve a SSAS company and it does amaze me how many Directors get this all wrong (and so do their advisors!)… Nicely explained too.

[@Holdeenio]

Paul does great videos on SSAS, he may be a good guest on your podcast for those who are self employed/run a small business 👍🏼

[@minimad8793]

Thanks to Nick for sending the link to this.

[@RuchiV]

Fantastic info! This goes to show how important it is to be registered into a pension scheme even if you're not planning to invest into it that tax year, great vid and congrats on hitting 50k! Hope to be there one day haha

[@MeaningfulMoney]

Good luck Ruchi, and thanks for watching!

[@guyr7351]

Spot on Ruchi, just part of the financial eduction that schools should look to offer. We used to have a period called general studies where almost anything could be covered, showing kids how “easy payment” credit cards can get out of hand, pensions a little saved for 40+ years becomes a lot, salary v tax, NI contributions, costs of living etc etc. fuel is £7.50 - £8.00 a gallon now so those little journeys kids ask for soon cost an arm and a leg. I’m lucky in sorted pensions a few years ago so working now to save more but also pay the mortgage, 3 1/2 years to state pension with a private one due a year early. Stopping work and playing golf seems more attractive every day 😀

[@jordanmcgrory2171]

Two years late to the party, but wanted to say thanks anyway. I've been trying to work out this year's annual allowance usage for this year and this was very reassuring.

[@yorks_atheist3069]

Thanks didnit realisd the cap was on thw carry forward too Question if i was in my final year of work could i save a years tax by psying 100% of wage into pension living off savings.

[@imaley]

Found your channel last night and watched a few vidoes, some fantastic simplistic explanantions of things i've been struggling with for a while on pensions etc. looking forward to going throug the playlist - a great resource.

[@MeaningfulMoney]

Hey, that’s great! I’m so glad it is helpful - thanks for being here! 🙏🏻

[@elom44]

Just wanted to say a massive thank you. The explanation of carry forward in relation to DB schemes has just stopped me from making a huge mistake which would have cost me a lot of money!

[@MeaningfulMoney]

You’re welcome, elom44!

[@SINGFIN1964]

Interesting. What happens if a person works as Locum and the annual income varies greatly?

[@abdabzeebop2]

I was told by HMRC this morning that even if I earned nothing in a given tax year, I can still contribute to a personal pension. I've already contributed more than my income this year to my sipp, and that's okay by them.

[@robbobkirk]

Excellent video - first clear description I've read of the carry forward rules. Very useful - thank you.

[@MeaningfulMoney]

Glad it was helpful!

[@stanleywarburtonart]

You didn't mention those at the other end of the earnings scale or us oldies already drawing on a pension! If you’re earning less than £3,600, or in receipt of any pension, you can still pay in up to £2,880 each tax year and the government will automatically add up to £720 (20% tax relief) on top until age 75. Mine is building up into a nice little pot together with my ISAs while I receive my full company DB pension.

[@MeaningfulMoney]

That’s true Jal - forgot to add that. Thanks for commenting!

[@jimleitch9576]

@@MeaningfulMoney Hi so does this mean you can add £2880 from your DC pension income. i.e. you have to earn it another way?

[@Talkathon408]

​@@MeaningfulMoney So can you carry forward a previous year in this situation if you could only contribute £2880 in that year too but didn't? And if you can, does any carry forward contribution amount have to be done as a single payment, or can it be multiple? I read somewhere this payment can only be done once. As in only one payment of £2880 if you didn't contribute anything in the tax year you're carrying forward?

[@willlsmith8063]

Congratulations on 50k subs buddy

[@MeaningfulMoney]

Thank you sir! Feels like a nice milestone - next stop, my 100k subs plaque!

[@mohamedpatel3978]

Cracking video. I know we've discussed Carry Forward by email but I understand it more so you can sleep easy that I won't keep mithering you on the subject. Cheers.

[@MeaningfulMoney]

Ha! It’s a pleasure Mohamed. By using the word ‘mithered’ I’m guessing you’re from up north, like me?

[@mohamedpatel3978]

Too right. Once a Lanky lad always a lanky lad.

[@talbotsunbeamer]

So helpful Pete - as a limited company owner I was a bit lost about allowances when you pay yourself via dividends. This gave a very clear and concise answer.

[@MeaningfulMoney]

You’re welcome, and thank you! 🙏🏻

[@owensmith7530]

Hopefully that tax loophole will soon be closed and company owners will be made to be honest and pay the same tax rate as the rest of us. I don't blame you for exploiting it, but it's a loophole and it should be closed. Why do you deserve to pay less tax than other people just because you own a company? It's not right.

[@davidwebb2318]

@@owensmith7530 They are simply taking profits from their company just like any investor in a business. The reason the tax rate is lower is to compensate those people for the risk they take in investing in and running the business. Running a business is risky but it provides employment for themselves and often for other people. The government obviously wants to encourage that because creating jobs is an important thing to do. Maybe you disagree but without the millions of people who run small and medium sized businesses we would have ten million people unemployed and claiming benefits.

[@owensmith7530]

@@davidwebb2318 But many people abuse this by running a one person business that is solely for contracting their time to another company. As a computer programmer I see this all the time, contractors who are paid more than permanent staff and because they own a company they also pay less tax. They then do shoddy work, disappear at the end of their contract leaving us regular staff to clean up the mess, and move on to another contract where they are again paid more and taxed less for doing a poor job. It's not right.

[@davidwebb2318]

@@owensmith7530 Your problem with this system really seems to be two things.... 1, The 'value for money' of contract staff in your industry. 2, The 'injustice' that contract staff end up getting more net pay. In relation to 1.... You are right, contractors in the IT industry are often not good value for money. The solution to this is to set up a company that competes in your industry. Have a policy of never employing contractors. Because you aren't wasting money on contractors your company will eventually outcompete everyone else. Don't fancy risking your own money setting up a business to compete in your industry? Then you are demonstrating exactly why those who take business risk have to be compensated for that risk. In relation to 2... Contract staff get more net pay. Yes, but they get less job security, have no employment rights, they have no employer pension contriutions, they have no ability to take part in share options savings schemes, travel season ticket loans etc etc. They do have to pay accountants fees, do tons of Companies House and HMRC paperwork, pay employers and employees National Insurance etc etc. HMRC seem to make the rules on this tighter all the time so they are at risk of getting themselves into a difficult position if they make a mistake. If you think they are genuinely better off overall then you should consider working in the contract market. If you prefer the security of employment then stay as an employee. Unfortunately in this world you cannot have both the security/benefits of employment status AND wages that match contract rates. It might not seem 'fair' but think back to the furlough scheme in 2020. People who paid themselves in dividends instead of wages got no furlough payments if they couldn't work.... That is their fault for choosing the lower tax route and I have no sympathy for them. It does show that there is payback sometimes though and they don't always get things their own way.

[@rlove21]

Excellent video as always Pete, carry forward and the taper threshold isn't the most straightforward thing to understand, so thanks for the links to the Gov site too.

[@MeaningfulMoney]

Cheers, Richard!

[@winjustin]

Absolutely brilliant ! The best video I have watched on this topic.

[@MeaningfulMoney]

Glad it was helpful! Thanks for watching and commenting! 🙏🏻👍🏻

[@johnporcella2375]

Could you explain some more about making a pension contribution from a personal company that is so big that it causes a deep loss? How much of a loss is not deep? What if the Directors Loan Account is awash with money that even a deep loss does not inpinge on its ability to trade?

[@MegaAliRah]

Is the exclusion of rent in the AA assessment with HMRC still valid today?

[@zkkrhfhska]

how is tax relief calculated on the carry forward? does it just offset against taxable gross in the period? can you get back personal allowance by getting your taxable gross in the period under 125k again?

[@timblake5777]

Pete. As usual informative and interesting. Are there any nuances if you have both a DB scheme and a DC scheme? Many thanks for all your hard work!

[@MeaningfulMoney]

Lots!

[@guyr7351]

Pete in addition to this I have 3 DC schemes, two I pay into Nest, Aviva and the Zurich (crystallised) plus a DB scheme , the DB I would like to convert to cash it’s CETV value is 10-15% over the other three combined. The DB would match state pension if no tax free taken Main thought on converting is to allow funds to pass to beneficiaries upon my death, but there is a cost on fees plus Advisors Reluctance to actually carry out the process of moving the funds due to the paperwork. THe government / FSA seem to forget ultimately the fund is our money to use.

[@aya49579]

This video is great, thank you for the clear explanation. I have 2 questions: For a non taxpayer who is allowed to contribute £2,880 per year to a pension/SIPP, is he/she allowed to carry forward the £2,880s from previous years? Also, if we are only allowed to apply the carry forward rule to the years that we already have a pension in place, are we only allowed to pay into the pension pot that was already there in previous years or are we able to pay into a new SIPP account set up this tax year to carry forward?

[@zoe440]

Thanks Pete. What if Sally wasn't always earning £180k. What if 3 years ago she was earning £80k, 2 years ago she was earning £110k and 1 year ago she was earning £150k. Would she still be able to use the £180k as the figure for the annual allowance?

[@dipster2342]

Hi Pete, very informative & clear. You state that rent doesn’t count towards income for the purposes of annual allowance limit. What about a rental business income from say a rental partnership which is registered as a partnership for tax purposes? Thanks

[@MeaningfulMoney]

Hmm. Good question. I imagine that would be OK - but I’d want to check that with an accountant to be sure

[@leegooch7545]

All very complex and I have some pension issues with carry over with potentially cashing shares which are classed as income. I would love to have an hours consulatation with you if you did such a thing. I would happily pay for this advice as I am stuck on what to do.............

[@mcooling74]

Just dropped on this - excellent explanation! The bar chart examples really made it clear. One question I do have though. The rules say you have to use all your current year's pension allowance, before you can carry forward from previous years. How do you do this, when you don't know exactly how much you have contributed until after the pension tax year has finished?

[@MeaningfulMoney]

That’s really only a problem with DB pensions, but it is a problem nonetheless! You have to take a stab at your pension input in the scheme based on your salary, accrual rate of the scheme etc.

[@JH-sx7eb]

Great video thank you ! - but you raise a point I have not considered before - I am in two DB schemes 1 I left in the 90s the other I left in 2012, neither for huge amounts but am now in a DC scheme, those DB plans are going up with inflation each year, even though I am no longer in the plans and 'contributing' each year, are you saying that inflationary increase still counts against my allowance this year and hence limits the amount I could contribute to the DC plan ?

[@DocNick68]

Great vid. Working out the AA for my wife's DB pension today I realised that inflation can make a big difference to the amount of AA used. Even though she hasn't paid in any more than usual her pension pot will grow substantially meaning her remaining AA is thousands less than it has been in previous years. As a part-timer on a relatively low salary her additional payments into a SIPP could take her over the AA limit.

[@MeaningfulMoney]

Remember it’s the year’s benefit accrual, NOT the inflation uplift on previous years that counts towards the AA.

[@johnporcella2375]

That sounds odd. High CPI will make the opening DB pension benefits bigger. This is then subtracted from the closing figure in the usual manner. Even if the closing figure is bigger, so too is the inflation adjusted opening figure, so unless someone has had a big pay rise, say from promotion, it should not make that much difference.

[@Yodabookeeping]

Thank you. Great Video and Examples.

[@rudin359]

Thank you for your time taken to provide us with such amazing content 😊

[@MeaningfulMoney]

You are most welcome, Rudi - thank you for being here!

[@shaunregan8088]

Excellent content I’ve liked and subscribed. This is exactly the video I needed and think you’ve answered my scenario (couldn’t find an answer anywhere else). My scenario is that I’m in a DC pension with my employer. Also income is received from a widows pension. Tax is only paid on earnings because of the extra income from the widows pension (I don’t earn enough to pay tax with job earnings alone). I have a SIPP that I want to put max amount in to receive tax back. I now think I have the calculation I need. (My total earnings for job - employee contributions via work pension) * 0.8 is the max I can put in the sipp and receive tax relief? Previously I thought I had to use the non tax payer limit of £3600 per year. Thanks again great channel. Going to binge watch some of your other content.

[@MeaningfulMoney]

Spot on, Shaun!

[@shaunregan8088]

Sorry one more question. In my example above I put that I need to subtract employee contributions (made into my work DC scheme) from my relevant job earnings, do I need to subtract any employer contributions too? Thanks again for the excellent content.

[@AndreMalanUK]

Excellent video. Very helpful as usual Pete and that piece about topping up the previous years allowance was just what I needed explaining! Best personal finance/pensions channel by far. Thank-you.

[@MeaningfulMoney]

Thank you Andre - appreciate the kind words and I'm glad it was helpful!

[@geztinsdale]

I have a question not answered in this video, if you use salary sacrifice for pension contributions, does this reduce your yearly income figure for annual allowance tax purposes - example earn £60k this tax year and pay £20k salary sacrifice, would that reduce my annual allowance from £60k to £40k ?

[@richparnold]

Hi Pete, is the annual limit (now £60k) based on the date deductions made by my employer or the date they pay it to the pension scheme, which for March will be around 20th April?

[@MeaningfulMoney]

The annual limit is based on the Pension Input Period, which is the same as the tax year. So it’s £60k per tax year - HTH!

[@richparnold]

@MeaningfulMoney My question is whether it's based on the date the amounts are deducted from your employer orvthe date they pay it to the pension provider?

[@markiemucka]

Great video as always, very well thought through and explained. A question, how you manage access to those previous year's allowance? If I pay £50k in a single tax year, what immediately happens and how do I assign the £10k excess to a previous year's allowance? Via annual tax return?

[@MeaningfulMoney]

Essentially Mark, you just make the payment like you normally would. The allowance is carried forward to this year, so as long as you have the headroom in your relevant UK earnings, its fine. You would reclaim any higher rate relief through your tax return. I’m not 100% sure, but I think you would need to do a tax return anyway…

[@andymiles5156]

Hi Pete, am I right in thinking salary sacrifice pension schemes, where your gross wage is reduced by the amount of the pension contribution and the company you work for pays it in instead, also mean the limit is £40K (soon 60K) irrespective of salary? I know there’s other issues around NI if you pay in too much.

[@mwscuba]

great video and great explanation of the carry forward system but say you had a big redundancy payment ( 90k ) and that took you over the 30k tax free amount and you has over 60k of carry forward allowance how do you actual do the process. can you just pay the 60K into your pension and then just note that somewhere on your self assessment ?

[@MeaningfulMoney]

Yes, you can do that.

[@MatthiasKroeger-f6n]

For 2023-24 I plan to make a voluntary pension contribution of about £20k (bringing me up to my maximum annual earnings). Can you confirm if I would pay in the £20k and the government adds the tax credit, or would I pay in £16k and the government adds £4k (25%) on, to make it a total of £20k?

[@jasonferguson4895]

Another great video thanks. I have a SIPP pension with work which is through salary sacrifice , however if I increase my contribution too high of a percentage of my wages they stop salary sacrifice and take it out after tax. which means you effectively lose NI savings. The reason they said they do this is that you have to earn above the minimum living wage (now £9.50 per hour) which seems silly if you lose the NI savings? A large part of my wages is in shift allowance and premium rates which they don't take into account only the hourly rate and I could easily contribute more. still I am contributing something.

[@MeaningfulMoney]

Yep - those are to their rules, but government rules. You can't sacrifice salary to the extent that you fall below the living wage.

[@guyr7351]

But you can pay into your pension from take home pay and get tax back, as you say will be paying NI on salary which previously you saved

[@autilonskorr237]

Hi Jason, Is the minimum wage limit calculated on a months pay, or annual? I currently do a min / max arrangement where every third month is over 75%, but the other two months are at minimum, so I am curious to know if I will run into any issues later on. Cheers.

[@johnkennet3036]

@@autilonskorr237 Technically salary sacrifice means you have a temporary new contract with a lower salary. That cannot be lower than minimum wage in any pay period. John Lewis got into trouble by averaging it. So possibly.

[@guyr7351]

Great video again, I was wondering about the claw back from previous tax years as I thought your salary in those tax years would apply not my salary for this year.

[@MeaningfulMoney]

Thanks Guy - THAT'S the thing everyone gets wrong. Your contribution is always limited by your Relevant UK Earnings in THIS year, the year. you make the contribution.

[@guyr7351]

@@MeaningfulMoney so I can add extra contributions for those years but at this years limit once I have maximised this years contribution and have to allow for tax relief.

[@riccardo4134]

great job!

[@PeteMulv]

Thanks for that, just a quick question, I pay into a pension wrap and I am also paying into the government workplace pension, my question is, does the employer's contribution also form part of the £40,000?

[@MeaningfulMoney]

Yes, it does, Peter

[@PeteMulv]

@@MeaningfulMoney Thanks for the speedy response, great videos, and great service.

[@Jedward7009]

Just to clarify please, so your contribution plus your employers contributions all add up towards your annual allowance. What about the added 20% on top of your contributions that the government adds to each payment. Does this also add to your annual allowance ? Also if you earn less than £40K a year then if I am not mistaken the carry forward option does not apply and is pointless/not applicable. For example someone earning £35K a year cannot use any carry over from previous years. Thank you and a really informative video. Mike C.

[@johnkennet3036]

@@Jedward7009 Yes tax relief plus employer contributions all add into your annual allowance - its a gross figure after tax relief. As employer contributions count if you earn 35K but get 5K or more employer contributions then you still can use carry forward.

[@johnkennet3036]

Not if you mean a DB pension. All Defined Benefit pensions are evaluated using the increase in benefit formula in the video (16* increase in benefits, inflation adjusted). The nominal employer contribution is irrelevant.

[@bevanpaul1]

Great video as always. Is there any difference in the year you take your DB or is it always x 16? For example if you take it earlier or later does the multiplier change?

[@MeaningfulMoney]

Nope - always 16x (and thank you!)

[@bevanpaul1]

@@MeaningfulMoney wow. Thanks. So the earlier you take it the less of your LTA it is. Good to know!

[@MatthiasKroeger-f6n]

Scenario: Annual earnings £60k Total of monthly contributions as salary sacrafice + employer contbn : £30k Is the remaining amount that can be paid in £30k (they add 20%) or £25k (and they add 20%/£5k)?

[@MeaningfulMoney]

£24k, not £25k if it’s from taxed income. That gets made up to the £30k by the pension company claiming the tax relief from HMRC.

[@nickrostampour]

Maximum you can contribute or maximum you can contribute whilst getting tax relief ? I hear people say all the time you can’t pay more than 40k or 60k this year into your pension .

[@MeaningfulMoney]

Hi Nick. It’s true that the AA is the maximum you can contribute and get tax relief. Some providers won’t allow you to contribute more, and others will.

[@georgeagan8078]

Great video here Pete! I'd lament all these weird rules if they didn't keep me in a job! 🙃

[@MeaningfulMoney]

Thanks man - I know, right?! For everyone trying to figure this stuff out via KZbin vids, there are thankfully some folks who are happy to delegate to advisers like you and I!

[@alangordon3283]

Hello Pete would consolidating your pensions affect carry forward .

[@MeaningfulMoney]

Nope, definitely not. That would not count towards the annual allowance.

[@johng2718]

Great video! Quick question - for DC pension (SIPP), if you claim higher rate tax relief on pension contributions but don't invest that extra relief into the SIPP (I.e. just use it to reduce your tax bill), is the higher rate tax relief still counted in the gross pension contributions? Thanks

[@MeaningfulMoney]

Yes, you always work in gross terms. So if you want to make a £10,000 gross contribution, you pay in £8,000 and the £2k is added to the pot to make £10k. Then you claim the higher rate relief through your tax return so you get £2k off your tax bill. So the £10k has only notionally cost you £6,000.

[@johng2718]

@@MeaningfulMoney Many thanks, if you choose not to reinvest the 2000 higher rate relief back into the SIPP, using it just to reduce your tax bill, does it still count towards your annual pension allowance? (i.e. if I pay 8k into my SIPP, and don't reinvest the 2k higher rate tax reilef, would 10k or 12k come off my annual pension contributions allowance?). Many thanks

[@rogerathome6980]

Useful information, what about those who are not working so don’t have an income, they can still invest 2880 and get a refund from hmrc of 720.

[@MeaningfulMoney]

Yes they can; I neglected to mention this!

[@tmm5115]

Regarding when you said 'MPAA triggers when you have taken any *taxable* income from a DC pension'. 1. I understand you can take 25%tax free lump sum from a DC scheme without triggering it. Can you take any of your personal tax free allowance (eg. £12,570 allowance before tax for 22/23) as well without triggering MPAA? 2. Once MPAA is triggered within a FY, does it reset for following FY? E.g if you took 25% tax free and make a further withdrawal on flexible drawdown within a FY, can you/your employer only contribute 4k into a pension the following FY if you make no withdrawals within that year?

[@MeaningfulMoney]

1. No. Any taxable income (even if it is taxed at 0% because it falls into your personal allowance) triggers the MPAA 2. The MPAA is permanent once triggered.

[@tmm5115]

@@MeaningfulMoney I thought that would be the case, thank you

[@MrSHABBATRONIC]

Hi Pete, love the channel and you have helped me get some clarity on my Pension etc. very clear and concise, thanks. I do have a question though, you mention that "remember that usually you make pension contributions net of basic rate income tax" 3m17s that part caused me a concern as I pay into my DC company pension the amount paid as an AVC and any pension deductions are before tax and NI - that was my understanding? Hoping you can help clarify, thanks in advance.

[@MeaningfulMoney]

Don’t worry, you’re correct. If you’re paying into a pension out of taxed income, ie, once you’ve been paid and the money is in your bank account, then you pay into a pension net of basic rate income tax. But in the case of paying into a scheme through PAYE, what you describe is usually the case - they’re taken before tax and NI are deducted from the rest

[@MrSHABBATRONIC]

@@MeaningfulMoney thanks Pete for clarifying I have just watched again one of your other videos on DB and DC that helped also clarify. Am I right in thinking if you paid in after tax can you claim the tax back on your tax return? Thanks for doing what you do very much appreciated. Kindest regards

[@simonebruschi9793]

Thank you. Question Lets say we are in November 2023/2023 i i realised thag i made 107 in 2022/2023. Can i contribute into my pension now in order to get back below that 100k for the previous year?

[@carrie20074]

I have a large sum of money sitting in my Limited Company and would like to put it into my pension this year but would also like to carry forward a year for previous unpaid contributions. I have been with Scottish Widows since 2003 and just transferred my pension over to Vanguard and registered my Limited company with them. Can i carry forward with my limited company if i have not been registered with the pension provider last year but have been as a PAYE worker

[@pnewman8]

Thanks Pete, great summary. If I want to use carry forward, for 2021/2, is there a form I need to fill in? Or is it automatic? Thanks

[@johnkennet3036]

No form, Just keep a record in case you are ever audited.

[@MeaningfulMoney]

Also, your pension provider will often ask you to declare that you have sufficient Carry Forward allowance to make the higher contribution.

[@stephenlaverty6266]

Brilliant stuff again, in your Sally earning £180 K pa carry forward example. Would it matter that she only earned say £10 K pa in the 3 previous years and lets say she paid in the max £10K gross into her pension those years. In simple terms, in this example can she pay in £40 K this year and get £90 K carry forward in 3 previous years or is she limited by her income in those years. Also am i correct in assuming that the £40 K AA and the £4K MPAA are not really limits just the limits to get tax relief on contributions, and in theory could you put say £100 K in to a pension in the hope of avoiding IHT for instance or is there rules on that....sorry for the chunky questions lol

[@stuartheslop8002]

Hi, is there a way to guess/estimate what a pension pot is worth today without adding to it? The calculators I see online seem to just add expected salaries until retirement. I've just been made redundant and I sacrificed all my notice pay to boost my poor total pensions. I'd just like to know if possible, what this pension pot will be worth on retirement given there will be no further contributions... I'm approaching 46 years old so another 21 years ish before drawdown.

[@MeaningfulMoney]

HI Stuart - you'd be looking for a compound interest calculator like this one: www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php You'd need to put in your current pension value as the starting figure and put a zero in the monthly addition. Choose an assumed growth/interest rate (say 5%?) and it'll give you an idea of the fund value down the line. Remember that inflation would eat into that value, so for a decent approximation, if you assumed that growth was 5% and inflation 3% you could enter a growth rate of 2% and you'd be somewhere near. Of course, much depends on markets, the economy, inflation and lots more besides, but 21 years is a long time. Good luck!

[@stuartheslop8002]

@@MeaningfulMoney Thank you for replying, I'll check that out... I'm just weighing up my future and maybe try something solo but the sums have to work of course. 😊

[@stuartheslop8002]

@@MeaningfulMoney Sorry one other thing, I have the estimated value, how does that then transfer to a drawdown. The pot is circa £44k so I'm guessing not much.

[@davidwebb2318]

@@stuartheslop8002 If you plan to use the money to buy an annuity you can get an idea of the annual amount from one of the annuity providers, there are loads on the interent who will quote if you give them a few details. Make sure you put in your age as the age you expect to retire etc. If you plan to invest it and draw from it then a reasonable rule of thumb is to expect to be able to take anannual drawdown amount of between 3 and 4%. 3% is quite conservate but 4% might be ambitious if you happen to retire at the same moment your investments all drop in value (e.g. during a stock market wobble).

[@stuartheslop8002]

@@davidwebb2318 Thank you David, I'll look into this... I think I need to pull my last pension into a SIPP and I'll just leave the local government one paltry as it is, where it is.

[@philipwilliams8114]

Great vid Pete. May I ask about IHT planning? How does a retired or low earner contribute large lump sums to a DC? Thanks!

[@MeaningfulMoney]

They don’t, not really. The Annual Allowance applies to everyone, so you have to have the relevant earnings to make the contributions. Those with an IHT problem should probably look to spend other assets, leaving their pension funds to grow outside their estate

[@simonkemp1030]

Thanks, well explained, frustrating that those earning below £40K can’t carry forward when circumstances means you have more free cash available with mortgage paid etc.

[@tf2368]

Why not? I thought anyone with a pension scheme can carry forward regardless

[@simonkemp1030]

@@tf2368 as I understand it you need to be earning more than £40 to use the carry forward scheme

[@tf2368]

@@simonkemp1030 Yes correct (sorry I misread that)

[@MeaningfulMoney]

Yes, that is correct, and yes, I think it’s a rubbish rule.

[@davidwebb2318]

You cannot carry forward for tax reclaim in this situation but you can make additional contributions over your earnings. (The 'annual allowance' only applies to the amunt on which youcan reclaim tax. Most people don't realise but you can actually put as much into your pension each year as you like with no restrictions. This at least means the capital is sheltered from capital gains and dividends taxes going forward. All you have to do is instruct your pension provider to not reclaim income tax on the amount that is above the annual allowance applicable for your circumstances. If you make any additional contributions it is also important to check the lifetime pension allowance as well so you don't end up with tax liabilities you weren't expecting.

[@MC-yy2jd]

Quick confirmation on this video, for someone with a pension for 4+ years, carer’s allowances isn’t considered income for the purposes of pension contributions? And presuming it is not, the most you can contribute with no income is £2880 per year with no access to previous years carry over? correct? Thanks

[@MeaningfulMoney]

Yes, you're correct M C - the maximum you can pay with no earned income (sorry, Carer's Allowance doesn't count) is £2,880 net (£3,600 gross) in this year, with no Carry Forward

[@OldManMarkoos]

Great video. Thanks. My pension contributions are made via salary sacrifice so I think I also save NI contributions in addition to Income tax. So I save 20%+13.5% Is that correct?

[@MeaningfulMoney]

Yes, that’s right. Mark. You’ll save the NI, but that doesn’t go into the pension, as such.

[@rinakaur7245]

How do HMRC know if you are contributing into a DB scheme? Just trying to figure out how they'd know you've gone over your annual allowance?

[@MeaningfulMoney]

Excellent question. Like with all tax, you’re supposed to tell them!

[@dipster2342]

Hi Pete, would a NEST pension be considered a registered pension scheme for unused purposes? Thanks

[@MeaningfulMoney]

NEST is defo a registered pension scheme. Not sure what you mean by unused purposes?

[@xiaomingzheng2073]

Hi Peter, it is very useful information. May I ask what does "Wholly and Exclusively" mean when you talking about a small business director's SSAS pension contribution? When I first set up my SSAS I paid £65k into SSAS from my company bank account in the first year. I did not get any tax release because my accountant said the it is "Wholly and Exclusively". My company was making over £100k at the time. What should I do?

[@MeaningfulMoney]

You need to ask your accountant how the wholly and exclusively test applies to your business. If he or she can’t answer, then you need a new accountant! Basically the test stops you from damaging your business by making disproportionate contributions to a pension.

[@graemeh6978]

Hi Pete , great video. I have a mix of two old final salary schemes and a DC / stakeholder scheme with my current employer. I’ve recently upped my contributions to max the 40k for this year. Does this mean I will now go over after I’ve had to try and work out the ‘contribution value’ of the two old DB schemes? I have unused allowance for the last 2 years but this will then be not any use going forward ? Thanks !

[@johnporcella2375]

You would have to see what, if any benefits uplift you have had in the relevant year. Ask your DB administrators for statements. But if you are no longer in those schemes, I cannot see how you would have increased your pension benefit.

[@stefanrobson9064]

Hi Pete, so if I'm putting cash in to a sipp does the 40k per year include the tax rebate from HMRC ? i.e can I put in 40x0.8 = 32k or is it 40 X 0.2 = 48k?

[@MeaningfulMoney]

It’s a gross figure, so £40k total. You would make a contribution of £32,000 to be made up to £40k

[@k0023382]

Excellent Pete, I have a couple of questions 1. Under DB, you said the contributionfigure against the 40K annual limit is calculated on how much the benefits has increased throught the year, what if you do not contribute any longer to the DB scheme (it only increases with inflation)? 2. Time 8:20, following your example (Sally, 50K), I have been told that the 10K will go first to next available year, however you put them on 19/20, does 21/22 takes priority on the 10K?

[@MeaningfulMoney]

1. No - generally increases in deferred DB benefits does not count towards the annual allowance. 2. The oldest previous year takes priority, once the current year is ‘full’. Hope that helps!

[@k0023382]

@@MeaningfulMoney Great stuff. Subscribed.

[@thepvporg]

What there needs to be is a pension that you pay in to that is index linked to the rate of inflation and that you get all the benefits of the pension when you retire and no worries about paying in, what the pension type is as all these varieties of pension is just bullshity really. When you dig deep, you find that the really convoluted complicated ones are for those with real money like have millions on the bank and they really don't need a pension types. The LGP1 pension I have is pointless, useless to me as I can not pay in to it from any other job, I have to get another public sector job to be able to have contributions paid in. I was also ripped off by the employer wriggling out of year two contributions because of their underhanded shenanigans. Basically when my first contract came to an end, my job continued but my contributions didn't... so a whole year of earnings lost, subsequently my flare up about it didn't go down too well, the women in the office were thick as... and a dumb as a post when it suited them, they even tried cheating me out of £466 in pay by taking hours back and not the monetary value of that because my pay went from £5.85 training (year 1) to £9.98 (year 2) per hour and they were trying to take the equivalent of £466 more than was owed because they said that they overpaid me which they couldn't prove to me given I was meticulous in spreadsheeting all my earnings and using HMRC calculators and tables to verify and sure enough, annually I was also being shafted out of £2,340 of my pay because of their "Averaging" practice... I won the tribunal, didn't make up for the losses, wasn't about the money although I would have preferred being paid what I was owed... The point was being made that the council couldn't push me around and I still 10 years on suffer the consequences of rocking the boat. I understand now, why you don't work for the council you live under, you work for the next county and when crap happens, at least council pettiness won't mess with your life.

[@pennyknight3251]

I am in a DB scheme, I still do not understand how much I am allowed to put in separate DC scheme.

[@MeaningfulMoney]

There’s an example about working out the DB input amount. Take that off the annual allowance and then whatever’s left is how much you can put into a DC scheme. Seek advice if you’re not sure.

[@flightsimcentre9244]

Excellent, any chance of a video for us self employed what could be the most tax efficient way to get money out the company? 7k or 12k a year, divided etc pension anything else. Can I pay a bonus, company car.....

[@MeaningfulMoney]

Noted - I'll add it to the list

[@curiousjoe395]

Can you claim the high rate tax relief (via tax return) for carry forward contributions?

[@MeaningfulMoney]

Yes, as long as you have the salary headroom to justify it.

[@curiousjoe395]

@@MeaningfulMoney Thanks for the prompt response. I had money helper telling me that the additional tax relief is only available on the current years allowance and not on any carry forward contributions. That's despite the total contributions (current year and carry forward) being within the current salary.

[@turnitaround7344]

Hi Pete, can I invest into my cash Lisa & a stocks n shares Isa in the same tax year? Thanks 👍

[@MeaningfulMoney]

Yep, no problem with that!

[@King_Harrold]

I currently pay £100pm to my daughter's Junior - SIPP. Am I correct to interpret the rules as, if she's still in education and not earning at 16, I'd have to stop paying into the JSIPP on her behalf. As no earnings = no pension allowance?

[@MeaningfulMoney]

No, you can keep contributing up to £2880 net (£3,600 gross) for her even if she's not working

[@santoshpradhan7844]

What about carry forward for DB scheme?

[@MeaningfulMoney]

Annual allowance and carry forward apply as much to DB schemes as DC. What constitutes a contribution is entirely different for DB schemes though, where it is about a multiple of the benefits accrued in the year, and nothing to do with what is contributed to the scheme. So if your benefit under the scheme increase by £2000pa in the year, then this is multiplied by 16 to get £32,000 - within the Annual Allowance so all is good. The difficulty is that often these figures are only made available AFTER the end of the year, so it can make it tricky to plan.

[@FerdiSchwarz]

Say you earn £200k in a year and have £150k allowance left. You therefore pay £120k in net to get your pension up to £150k. How much tax do you pay that year?

[@davidmcnay]

How does this work with salary sacrifice. Ie if some sacrifices all their salary then they have no earnings? Or does the sacrifices salary still count as salary?

[@MeaningfulMoney]

Yes, it does. Sacrificed salary is still relevant UK earnings

[@johnkennet3036]

Salary sacrifice cannot take your salary below minimum wage in any pay period. Salary sacrifice means you temporarily change your contractual salary and your employer makes a gross contribution. So its no longer relevant earnings and your relevant earnings drop. But employers can contribute any amount so its moot and essentially the same.

[@ZiglioUK]

Great video, thank you! I have a simple question, when it comes to self-assessment and there's tax to pay, they ask you whether you've made extra contributions into the pension for that tax year. That tax year is not the current tax year, so we couldn't for example pay some money into pension at the time of self-assessment in order to reduce taxes for the previous year, right? Thank you

[@MeaningfulMoney]

That's correct. Once the tax year is past, you can't carry BACK pension contributions.

[@ZiglioUK]

@@MeaningfulMoney that would be nice wouldn't it!

[@davidplanet3919]

You can do your own calculation close to the end of the tax year and work out what personal top-up contribution you want to make to save tax. There are some calculators online or you can create a spreadsheet if you like to do that. This helps with tax planning and gets you ready for completing the tax return (if you do one) in the next tax year. Personal contributions have the effect of extending the basic rate band by the amount of the contribution, which creates additional tax relief for HRT payers. You may also make sufficient contributions so you pay NO HRT.

[@owensmith7530]

@@davidplanet3919 You don't need a spreadsheet to do that, a calculator and half a side of A4 is sufficient to work it out. I've been doing it that way for the last 8 years.

[@rb157]

I wish you'd done this 12 months ago I carefully worked out what I could contribute and put it in a SIPP. I got that right, but the mistake I made is as highlighted at 03:18. The contribution should have been 20% less (net of basic tax). How do I recover from this or do I just accept that I need to pay the tax back? (Fantastic video though, I looked everywhere for this info and obviously failed)

[@MeaningfulMoney]

You may be able to use Carry Forward to justify the higher-than-expected contribution. Have you watched this video? kzbin.info/www/bejne/n3-xaKqmrLmNn8k

[@rb157]

@@MeaningfulMoney Thanks for the reply. I understand that the constraint is 100% of relevant earnings in the current year even if carry forward has been used to exceed the 40% annual allowance. I'm sure it will work itself out at the end of this year, but The biggest lesson I have learnt is that the 100% of relevant earnings includes the 20% tax automatically reclaimed.

[@PTCrucial]

Excellent video as usual. We’re lucky to have you. My question is: I am no longer a business owner, I am an employee, and a director of a ltd company. Can the company make pension contributions in excess of my salary as long as it does not exceed £40k? Please advise, thank you.👍🏼

[@MeaningfulMoney]

Yes, absolutely. There’s a test called the ‘wholly and exclusively’ test which is all about the company benefitting from the pension contribution. But that can be justified if you’re a key employee. The company should seek advice from an accountant on that.

[@PTCrucial]

@@MeaningfulMoney thank you very much Pete, sounds like I should be ok. Great channel Pete, you’re helping many people make sense of their finances. Cheers 👍🏼

[@shandy65]

Another great video.

[@MeaningfulMoney]

I thank you!

[@tf2368]

If I have 100k salary this year, 2020/21 contributed 40k (salary 40k), 2019/20 contributed 40k (salary 40k) and 2018/19 contributed 30k (salary 30k). How much would I be able to put into my pension this year, 40k or 50k?

[@MeaningfulMoney]

2018/19 is irrelevant as it’s more than three years ago, so you would have Carey Forward of this year’s allowance of £40k plus 2020/21’s allowance of £40k, so £80k of allowance. As that’s within your salary you could contribute the whole amount GROSS. BUT! I think you’re saying that you contributed 100% of your salary in the past three years, in which case you’re limited to £40k this year. Because your salary was £30k in the oldest year, THAT is your annual allowance for that year, so there’s no £10k to carry forward from that year.

[@tf2368]

@@MeaningfulMoney perfect thanks

[@davidwebb2318]

You can put in any amount you like. The annual allowance only dictates the amount of contributions you can reclaim the incoime tax on. If you want to put in more then you can. You won't get the income tax back on the extra but the capital will be tax sheltered going forward so it is still worth it if you have used up all your ISA limit etc.

[@EddieGittins]

If i want to pay more than my allowance, and more than carry forward will permit. can i do that ? i just don’t get relief ??

[@MeaningfulMoney]

Technically. But you'll pay an Annual Allowance charge and many pension providers won't allow it.

[@scott5146]

What happens if you've already carried-forward in previous tax years (say "Sally" had contributed £60k in 21/22 in your example)? Do you subtract that £20k from the carry-forward running total or just take the "carry-forwardable" amount as zero for that year?

[@MeaningfulMoney]

The latter, Scott. 21/22 would be effectively ‘full’ so there would be no unused allowance to carry forward to future years

[@simoncook1325]

Hello If I earned 8000 in the last 3 tax years from self employment but haven't paid anything into my sipp,does that mean I can pay in 32000 into my sipp now? Are contributions calculated on earnings in previous tax year? How do they know your earnings this tax year if the tax year hasn't finished Thanks

[@MeaningfulMoney]

You can contribute up to 100% of your earnings for this year, though you’ll make the payment net of basic rate income tax. So if you earn £8000 this year, you will pay £6,400 in and it’ll be made up to £8k. It’s difficult to be exact about earnings levels when you’re self employed, I know, but that’s why most pension contributions go in during March, right at the end of the tax year.

[@thematrix185]

Great video! Lets say I earn 100k and have unused allowance carried forward from previous years and decide to contribute a full 100k from my savings to my pension this year, what is the tax relief situation? Presumably I'd actually only be able to contribute some percentage of the 100k savings such that the governement tax relief top up will take me to the 100k limit? Theres lots of moving parts with this question so would be great as a follow up video (hint hint)

[@MeaningfulMoney]

You could make an £80k NET contribution that would be made up to £100k, then you’d get another £20k off your tax bill via your tax return. Maybe I’ll do another examples video. Watch this space…

[@thematrix185]

@@MeaningfulMoney so you can get 40% tax relief even on the parts of your salary which fell within the basic rate tax band or personal allowance?

[@davidwebb2318]

@@thematrix185 You can put in the full 100K if you want. The 'Annual Allowance' is only a limit on the amount of contributions you can reclaim the tax back on. In actual fact there is no limit to the amount you can put into your pension in any year. But, you will get penalised if you go over the lifetime limit and if your pension provider reclaims tax on contributions in excess of the annual amount then you wil have to pay the tax they reclaimed back. Just make sure your pension provider only claims the tax back on the contributions up to the 'Annual Allowance' and you will be fine.

[@parkers8245]

For a non-tax payer, can you gain tax gross up on contribution up to the limit(£2.5kish I think) for previous under contributed tax years(3)? thanks

[@MeaningfulMoney]

Nope, you can just make a contribution for this year - £2,880 net, £3,600 gross - no carry forward available

[@parkers8245]

@@MeaningfulMoney Thanks for the reply, all these rules, LOL

[@belvedereroaddarlington7118]

Hi Pete, I love your You Tube advices, you said that you cant Carry Forward if you have not earned over £40k or paid into your pension (SIPP) 8:10 Time, seams a bit unfair if you don't earn over £40K, as it will never be achievable if you always earn under that, eg, No Carry Forward if you earn say £30K per year? you can never use Carry Forward, is that correct?

[@MeaningfulMoney]

Basically, yep. I don’t make the rules!

[@marcolai9735]

Are employer’s contributions included in the 40k max allowance?

[@MeaningfulMoney]

Yes they are, Marco - that's the one thing I failed to emphasise this time!

[@Daryl-bk4yu]

Hi Pete Great content as usual. A quick question. Does the max you can contribute include employer contributions? So for example, if I earn £50k & my employer contributes £5k, can I then max to £50k or £55k (subject to available carry forward)? Congrats on getting to 50k subscribers btw. Cheers Daryl

[@MeaningfulMoney]

Hi Daryl - the employer contributions are included. I'm kicking myself that I didn't make that clear enough in the video!

[@davidwebb2318]

If you can accept that you won't reclaim the income tax on the extra £5K you can put that in as a personal contribution. It isn't as nice as getting thetax back but that money is at least protected against Capital Gains Tax and Dividend Tax etc going forward.

[@davidplanet3919]

If the relevant earnings are less than £3600 (or even zero) you can pay up to £3600 in.

[@MeaningfulMoney]

That's true, David - I neglected to mention that.

[@defbref1]

Pete I love your content and you have helped me so much and I always direct people to your youtube but... Can we please stop saying its the lower of 40k or your salary. This is wrong and is conflating two distinct and different limits with different rules AA is 40k but that includes all contributions to a pension not just personal contributions, the other limit is the tax relief limit which only applies to your personal contributions. This is why trying to tell people that its the lower of 40k/salary is wrong. E.g. You could have a employer who contributes 25k into a pension for you, and yet you earn 30k, this scenario now fails the lower of 40k or salary test, as you can only put 15k in without using carry forward not 30k. You may say that example is unlikely but a DB pension can easily eat up large amounts of the AA without people realising. Please please explain that its two distinct and separate limits (AA and Tax relief limit) that have to be satisfied at the same time not an either/ or situation!!

[@MeaningfulMoney]

Hi David. You are, of course, absolutely correct. When creating the script for a video such as this, my goal is always to simplify. In so doing, there is some inevitable nuance lost, such as the detail you describe here. What I think I failed to do this time is to make it absolutely clear that the Employer contributions are also subject to the AA. That said, for the vast majority of people watching, I think that the £40k or 100% whichever is lower summary will suffice as a rule of thumb. It's impossible to cover every scenario in examples within a video, as I'm sure you understand. I do appreciate your support; thanks for commenting and keeping me straight!

[@davidplanet3919]

Excellent. It should also be noted that with “Salary Sacrifice” arrangements into DC (and DB) schemes there are strictly NO employee contributions, though payslips will often distinguish between the employee/sacrificed contributions and the employer contributions. All of the contributions are subject to the £40k allowance. When the MPAA is triggered in a year the allowance is £4k for the rest of the year PLUS what was paid in before it was triggered, up to a maximum overall of £40k. Then in subsequent years the allowance is £4k.

[@davidwebb2318]

There is no limit on the amount you can personally contribute to a pension in a year. There is only a limit on the amount of contributions on which you reclaim income tax. Thus, people can contribute as much as they like in a single year even above their annual earnings as long as the income tax reclaimed is at the correct level. Many people do not realise this and many pension providers don't know this either (or don't have a way to handle the tax reclaims correctly). Of course people have to be careful about running into the pension lifetime allowance if they make these additional 'non income tax reclaim' contributions so it can get complicated if they are close to the limit.

[@guyr7351]

When trying to put extra contributions using carry forward can you use the salary you were on in that tax year, or is it governed by your current salary? I could put money into previous years higher than my current salary if allowed.

[@MeaningfulMoney]

Nope - THIS year's salary is the ultimate limit.

[@iainhunneybell]

But Pete, £40k isn’t the max you can put into a pension in a year, it’s the max you can put in before you get hit with additional tax, but you can go past £40k. This was something you covered before about exceeding the lifetime allowance, as while you pay more tax on taking money from a DC once you consume/crystallise 100% of the lifetime allowance or reach age 75 at which there is a reckoning, you still benefit from the compounding of the funds that likely outweigh that additional future tax. This all said, they most certainly do not make this easy and do so love to keep playing with the allowances. Just look at the history of the lifetime allowance!

[@MeaningfulMoney]

Exactly, Iain. it's also really difficult to get a pension provider to accept payments in excess of the Annual Allowance!

[@iainhunneybell]

@@MeaningfulMoney, I have managed it without realising Pete! Even this past year, having calculated contributions pretty much to the penny, things not being set by payroll and changes meant I had one month's contributions wrong and so ended up tipping over the 40K limit. As for the regular; Save more! Don't save that much! This much tax limit! No, that tax limit! Oh, let us change it again. Anyone would have thought they hadn't got a clue. Oh hang on...

[@johnkennet3036]

Your relevant earnings is the maximum you can pay into your pension in this year if you have enough carry forward. Not the annual allowance.

[@MeaningfulMoney]

That's correct John - thanks for the clarification, and for your efforts in the comments section!

[@gavjlewis]

What would happen if you put too much money into your pension through no fault of your own. Example: You earn £50k a year. Your expected combined works contribution is £5k. In April you have some ISA money so you put £28k into your pension (which gets topped upto £35k). So your expected amount for the year is £40k. Then in say September you get made redundant and can't find a job for the rest of the tax year? So by then you have contributed £37.5k but only earnt £25k.

[@johnkennet3036]

You pay a tax charge on £12.5K of £2.5K.

[@gavjlewis]

@@johnkennet3036 Thanks. So you just lose the tax relief then. So it's still worth putting it in at the start of the tax year for the possible gains rather than at the end of the year when you have definitely earned all the money for the year.

[@johnkennet3036]

@gavjlewis Possibly. I don't like the thought I am on HMRCs naughty list so I only contribute up to the taxable amount I have earned so far each year.

[@MeaningfulMoney]

I love this way of putting it, John - the naughty list! Also, @gavjlewis, many pension companies wouldn't accept payments in excess of the annual allowance without you singing a declaration, which you might fall foul of - suggest you contact your pension company

[@richardsmeeton8910]

Sally’s employer could make additional contributions in the 50k salary scenario. This happened to a colleague of mine; employers pension subs had been underpaid for 8 years and they made up the shortfall in one go.

[@MeaningfulMoney]

That's true, Richard

[@johnporcella2375]

I understand all the examples given. However, the Priya example shows the statement ar 2m46s to be a faulty, no? The standard allowance is £40,000. She earns £50,000. So her maximum AA is £40,000. No problems there, do you agree? If she has £10,000 of unused relief from the last three years, then she CAN contribute more! This contradicts what is stated at 2m46s that her AA is the maximum limit and no more can be paid in! Your comments, please. PS I realise the mistake in the graphic. Where it states that you cannot contribute more than your AA in a year, you meant to type 'you cannot contribute more than your relevant earnings in a year". The example with Sally later made me realised where you had gone wrong as you state it differently and correctly there.

[@nicobass1966]

Phew!

[@davidwebb2318]

Sorry, you have got this wrong. In the UK you can actually contribute ANY amount to a pension in any year (but would be very unwise to do so if you exceed the lifetime pension limit). The annual allowance is for the amount you contribute to your pension where you claim the tax back. So, you can contribute more than £40,000 per year but the amount of tax claimed back into your pension will be limited by the annual limit (£40,000 or your earnings, whichever is lower). Loads of people DO get this wrong and it appears you have fallen into this trap. Here is a direct quote from the government web site... "There is no limit on the amount that an individual can contribute to a registered pension scheme."

[@MeaningfulMoney]

Well, the video is talking about the Annual Allowance, so I’m not wrong. I do get your point, you CAN contribute more than the annual allowance, though you’ll get an annual allowance charge if you do (essentially paying back the tax relief). Also, most providers will ask you to certify that you have the available annual allowance to make the contribution. If you don’t, some will not allow the payment, despite the rules saying that it is allowed. Or if you pay in more than the annual allowance, and the pension scheme doesn’t have the facility to pay the AA charge, then you’d have to pay it out of other money. So while you’re absolutely right, and I do appreciate the clarification, the video serves to answer the most pressing question that the vast majority of viewers have.

[@davidwebb2318]

@@MeaningfulMoney Thanks but you have still got a couple of details wrong... 1, The way you have worded and presented this video makes it look like there is an annual contribution limit. That is simply not true. There is only a tax reclaim limit, the so-called annual allowance, which should probably be called the Annual Pension Income Tax Reclaim Allowance. HMRC don't really make this clear in their documentation. The reason is simple - they are only concerned with the taxation of pension savings so it isn't up to them to tell you what you can do outside of the tax regulations. This is the root cause of why so many people don't know this. When you publish a video reinforcing this erroneous belief by failing to mention the fact that there is no limit all you do is make sure even more people get this wrong. 2, You WON'T get an annual allowance charge if you instruct your pension firm to not claim the tax back. The annual allowance charge is only there to recoup tax reclaimed that shouldn't have been. If you instruct your pension firm to not put the claim in then there is no tax for HMRC to recoup from you so you don't get charged. It is quite simple if you can find a pension provider who actually understands the rules. Yes, some pension firms don't really understand the rules and ask you to make all sorts of declarations or they (incorrectly) think there is a limit on contributions but the trick is to find a decent pension management firm who does understand the rules. They will accept any contributions and follow your instructions so they only claim the tax back on the correct amount. That then leaves the customer without any other paperwork or charges at all. Obviously making contributions in excess of the amount you will reclam income tax on is a good idea because you have instantly sheltered your pension contribution from capital gains tax and taxes on any dividends the investments pay out. If you are over 55 but planning to save for a few more years this is similar to having a flexible, additional ISA allowance because you can invest without the returns being taxed and then draw from it when you choose (subject to the usual pension income tax rules) . For someone decades from retirement this might or might not be such a good option but more people should definately take more advantage of making 'non tax reclaim' pension contributions. Sadly, even some of the larger UK SIPP and pension providers get this wrong because they only look at what HMRC says about pensions. They don't seem to realise there is more to the rules than just the tax side of things. They really should look at all the rules not just the tax related elements. If you are presenting yourself as an expert on the subject then you should make sure you give the complete picture instead of just reinforcing the same incorrect assumptions as so many others do.