what's the maximum I can contribute (pension)?
Discussion
My wife is a primary school teacher on 28 grand a year(she's only 27 but makes sense to think about maximising pensions etc), I know the teachers pension scheme is very generous .
If I were to start a private pension/SIPP for her what's the maximum contribution I can make ? ( is it upto whats taxable salary in one year so if personal allowance is 10k then it would 18 grand minus her contribution to the teachers pension scheme?)
How does it work using previous years pension Allownces ?
Thanks for replies
If I were to start a private pension/SIPP for her what's the maximum contribution I can make ? ( is it upto whats taxable salary in one year so if personal allowance is 10k then it would 18 grand minus her contribution to the teachers pension scheme?)
How does it work using previous years pension Allownces ?
Thanks for replies
The maximum you can pay into a pension scheme each year (the "Annual Allowance") is £40k, although this reduces for high earners on more than £150k pa.
The TPS is generous. For this purpose, the value of defined benefit accrual each year is 16 times the increase in pension (less a bit of an adjustment for inflation). I know the TPS has changed a bit over the years but the annual value of the pension accrual could be something like £28,000 / 60 * 16 = £7,500. That would give plenty of scope to pay more into a pension - probably £30k plus.
But, to be honest, and bearing in mind this isn't financial advice because a) I don't know all your facts and circumstances and b) I'm not authorised to give individual financial advice anyway and c) probably lots of other reasons too ...
I would say don't bother putting any more money into her pension arrangements.
The TPS is pretty generous anyway, particularly when combined with the Basic State Pension.
She is only a basic rate tax payer and pensions become much more tax-effective once you hit the 40% rate.
ISAs are almost as tax-effective and more flexible - at your age there could be any number of reasons why you might need access to the money in the next 30-40 years.
The Government keeps arsing around with tax limits on pensions - the "Lifetime Allowance" is now just £1M which sounds a lot but equates to a pension from a DB scheme of £50k pa. I know that's a lot compared with the likely outcome from the TPS based on current salary but a headteacher on £75k pa could be starting to trouble that limit, and who know how pension limits and your personal circumstances could change over the next 30-40 years.
The TPS is generous. For this purpose, the value of defined benefit accrual each year is 16 times the increase in pension (less a bit of an adjustment for inflation). I know the TPS has changed a bit over the years but the annual value of the pension accrual could be something like £28,000 / 60 * 16 = £7,500. That would give plenty of scope to pay more into a pension - probably £30k plus.
But, to be honest, and bearing in mind this isn't financial advice because a) I don't know all your facts and circumstances and b) I'm not authorised to give individual financial advice anyway and c) probably lots of other reasons too ...
I would say don't bother putting any more money into her pension arrangements.
The TPS is pretty generous anyway, particularly when combined with the Basic State Pension.
She is only a basic rate tax payer and pensions become much more tax-effective once you hit the 40% rate.
ISAs are almost as tax-effective and more flexible - at your age there could be any number of reasons why you might need access to the money in the next 30-40 years.
The Government keeps arsing around with tax limits on pensions - the "Lifetime Allowance" is now just £1M which sounds a lot but equates to a pension from a DB scheme of £50k pa. I know that's a lot compared with the likely outcome from the TPS based on current salary but a headteacher on £75k pa could be starting to trouble that limit, and who know how pension limits and your personal circumstances could change over the next 30-40 years.
Zigster said:
The maximum you can pay into a pension scheme each year (the "Annual Allowance") is £40k, although this reduces for high earners on more than £150k pa.
The TPS is generous. For this purpose, the value of defined benefit accrual each year is 16 times the increase in pension (less a bit of an adjustment for inflation). I know the TPS has changed a bit over the years but the annual value of the pension accrual could be something like £28,000 / 60 * 16 = £7,500. That would give plenty of scope to pay more into a pension - probably £30k plus.
It is a maximum of £40k or relevant earnings, which ever the lowest. So in this case £28K minus £7,500 leaves £21,500 (not £30k plus).The TPS is generous. For this purpose, the value of defined benefit accrual each year is 16 times the increase in pension (less a bit of an adjustment for inflation). I know the TPS has changed a bit over the years but the annual value of the pension accrual could be something like £28,000 / 60 * 16 = £7,500. That would give plenty of scope to pay more into a pension - probably £30k plus.
I completely agree that an ISA is likely to be more suitable for a basic rate tax payer.
If funds could be used to enhance the TPS rate this would be a very good pension outcome. I don't know enough about this to comment further, but would certainly recommend looking into this as much as possible with regard to increased pension provision.
Yes, the total taxable pay is £28k for calculation purposes.
Calculation as above on 3 previous years too.
TPS would be a good investment but I suppose it will depend on Scheme Rules and AVCs??
Pretty sure the withdrawal of AVCs has a different set of rules too.
Where's Ginge and sidicks when you need them?
Calculation as above on 3 previous years too.
TPS would be a good investment but I suppose it will depend on Scheme Rules and AVCs??
Pretty sure the withdrawal of AVCs has a different set of rules too.
Where's Ginge and sidicks when you need them?
You are all correct to a certain extent.
The £7,500 is a notional contribution solely for the purpose of assessing against the annual allowance, so there would be £32,500 annual allowance remaining to be used.
The £32,000 can be paid personally, but, tax relief cannot exceed the tax you pay (ignoring the diminimus allowance). So in this instance only £17,000 would receive tax relief (£28,000 salary less £11,000 personal allowance).
Obviously people rarely make pension contributions that they don't get tax relief on.
The £7,500 is a notional contribution solely for the purpose of assessing against the annual allowance, so there would be £32,500 annual allowance remaining to be used.
The £32,000 can be paid personally, but, tax relief cannot exceed the tax you pay (ignoring the diminimus allowance). So in this instance only £17,000 would receive tax relief (£28,000 salary less £11,000 personal allowance).
Obviously people rarely make pension contributions that they don't get tax relief on.
JulianPH said:
It is a maximum of £40k or relevant earnings, which ever the lowest. So in this case £28K minus £7,500 leaves £21,500 (not £30k plus).
I'm pretty sure it's £40k even if income is lower than that, but it would be a bit daft putting money into a pension scheme if there was no income tax to save.Quick Google gives: https://www.moneyadviceservice.org.uk/en/articles/...
Zigster said:
JulianPH said:
It is a maximum of £40k or relevant earnings, which ever the lowest. So in this case £28K minus £7,500 leaves £21,500 (not £30k plus).
I'm pretty sure it's £40k even if income is lower than that, but it would be a bit daft putting money into a pension scheme if there was no income tax to save.Quick Google gives: https://www.moneyadviceservice.org.uk/en/articles/...
There is actually no limit to what you can put into a pension.
You can put what you like into it.. you might not get tax relief on it mind! Cue discussion with Purple etc, and conjecture as to the benefits of using the wrapper to circumnavigate IHT..! Not many providers facilitate net pension contributions anyway.
Most of my clients accrue via a DB scheme. Annual accrual isn't linear, it's a truly unique calculation. One year, a relatively modest promotion and salary increase might create a liability subject to 'scheme pays' rules, another year, someone on a high salary might have a modest notional annual contribution. For my military clients, the pinch point kicks in c. Lt Col/Wing Commander grade. I would take great care in checking the TPS numbers, especially if you intend on using more than one year's allowance. If you do breach it inadvertently, there are a number of options, not least..
https://www.teacherspensions.co.uk/~/media/Documen...
Most of my clients accrue via a DB scheme. Annual accrual isn't linear, it's a truly unique calculation. One year, a relatively modest promotion and salary increase might create a liability subject to 'scheme pays' rules, another year, someone on a high salary might have a modest notional annual contribution. For my military clients, the pinch point kicks in c. Lt Col/Wing Commander grade. I would take great care in checking the TPS numbers, especially if you intend on using more than one year's allowance. If you do breach it inadvertently, there are a number of options, not least..
https://www.teacherspensions.co.uk/~/media/Documen...
JulianPH said:
It is a maximum of £40k or relevant earnings, which ever the lowest. So in this case £28K minus £7,500 leaves £21,500 (not £30k plus).
I completely agree that an ISA is likely to be more suitable for a basic rate tax payer.
If funds could be used to enhance the TPS rate this would be a very good pension outcome. I don't know enough about this to comment further, but would certainly recommend looking into this as much as possible with regard to increased pension provision.
I wonder if we won't see Osborne's legacy further unthreaded by the removal of the Lifetime ISA from statute. The common or garden type ISA is going to become redundant for many, especially in cash guise (£1000 annual personal savings allowance). It's worth accruing the bank though, for future, higher earnings days and now legacy issues when you bequeath to others.I completely agree that an ISA is likely to be more suitable for a basic rate tax payer.
If funds could be used to enhance the TPS rate this would be a very good pension outcome. I don't know enough about this to comment further, but would certainly recommend looking into this as much as possible with regard to increased pension provision.
Worth bearing in mind too, for many PHers looking to bump up their numbers to £40k, rental income isn't deemed 'relevant earnings'.
(It isn't what you make, it's what you keep, etc!)
Ginge R said:
JulianPH said:
It is a maximum of £40k or relevant earnings, which ever the lowest. So in this case £28K minus £7,500 leaves £21,500 (not £30k plus).
I completely agree that an ISA is likely to be more suitable for a basic rate tax payer.
If funds could be used to enhance the TPS rate this would be a very good pension outcome. I don't know enough about this to comment further, but would certainly recommend looking into this as much as possible with regard to increased pension provision.
I wonder if we won't see Osborne's legacy further unthreaded by the removal of the Lifetime ISA from statute. The common or garden type ISA is going to become redundant for many, especially in cash guise (£1000 annual personal savings allowance). It's worth accruing the bank though, for future, higher earnings days and now legacy issues when you bequeath to others.I completely agree that an ISA is likely to be more suitable for a basic rate tax payer.
If funds could be used to enhance the TPS rate this would be a very good pension outcome. I don't know enough about this to comment further, but would certainly recommend looking into this as much as possible with regard to increased pension provision.
Worth bearing in mind too, for many PHers looking to bump up their numbers to £40k, rental income isn't deemed 'relevant earnings'.
(It isn't what you make, it's what you keep, etc!)
I always thought the Lifetime Isa was the first step in getting the next generation onto a new system with lower tax relief.....and gradually fade out us oldies?
Jockman said:
I was under the assumption that it was the lower of net relevant earnings or £40k for tax relief.
There is actually no limit to what you can put into a pension.
Fair point! There is actually no limit to what you can put into a pension.
Maximum amount that gets relief against income tax ... so if your earnings are less than you wouldn't get tax relief anyway.Gassing Station | Finance | Top of Page | What's New | My Stuff