SIPP advice appreciated

[ReformedCharacter]

I'm planning to help my wife start a SIPP and would really appreciate some guidance.

My wife is a teacher, a member of both old and new schemes, not that I suppose that matters. As I understand it she can contribute £40k to her pension each year. My first assumption is that the calculation is therefore £40k less the sum she pays into her teacher's pension. If that is correct does the sum paid into her teacher's pension include her employers' contribution?

If my wife starts her SIPP after the end of this tax year, ie April 2023, how is it possible to calculate her teacher's pension part of the 40k allowance given that she won't know the exact amount until her last salary payment at the end of that tax year? If I understand the HMRC rules correctly, she cannot 'carry forward' previous years without making full use of the allowance in the current (next) tax year.

Thanks for any help.

RC

[kempiejon]

If SO has a defined benefits (DB) pension (the teachers pension is I'm pretty sure) they would need to deduct the pension benefit amount. This is needs a calculation I use this website https://www.mandg.com/pru/tools-calcula ... index.html The change in value of the BD is deducted from the personal annual allowance - the £40k or taxable earnings maximum. Or at least that's what I do

[AsleepInYorkshire]

I'm planning to help my wife start a SIPP and would really appreciate some guidance.

My wife is a teacher, a member of both old and new schemes, not that I suppose that matters. As I understand it she can contribute £40k to her pension each year. My first assumption is that the calculation is therefore £40k less the sum she pays into her teacher's pension. If that is correct does the sum paid into her teacher's pension include her employers' contribution?

If my wife starts her SIPP after the end of this tax year, ie April 2023, how is it possible to calculate her teacher's pension part of the 40k allowance given that she won't know the exact amount until her last salary payment at the end of that tax year? If I understand the HMRC rules correctly, she cannot 'carry forward' previous years without making full use of the allowance in the current (next) tax year.

Thanks for any help.

RC

The £40K has been increased to £60K in the last budget. But I'll assume you've both decided not to give up eating and want to shoot for the £40K instead. I don't know what teachers earn these days. If you wife's salary is over £50,270 her earnings above this will be taxed at 40%. I'll come back to this part.

The £40K includes a 25% rebate from HMRC. So the amount your wife will be stopped if she wants to pay £40K is £32K. That's the easy bit. From there it goes rapidly downhill and Einstein would lose the will to live trying to understand it all. There are no National Insurance payments on the £32K. So the way I understand it is that it is "salary sacrifice". And if your wife's earnings are above £50,270 she will also benefit from tax rebates on the full 40% tax she pays above this threshold.

The overall amount that can be put in a pension of £40K includes employers contributions. This is where you can forget trying to work it all out on a spreadsheet ... some employers will add their saving on Employers National Insurance to the employees pension. Other will not.

I've not addressed your question as I leave that sort of stuff to my accountant, for all the right reasons.

AiY(D)

[wanderer]

My wife is also a teacher and I also faced the sipp question this year. My efforts at working it all out were in this thread: https://www.lemonfool.co.uk/viewtopic.php?t=38229

In short, my advice is:

1. Use the calculator linked to by kempiejon above to work out the increase in pension value this year. You ignore the employer and employees contribution. The key number is the increase in benefits accrued, less inflation (sept to sept) on previous accruals
2. The amount she can contribute this year is the lesser of 40k OR her earnings and then reduced by the pension input amount above
3. You are right that the system is essentially rigged so it is almost impossible to figure out the full amount you can contribute, so you have to take a guess.
4. I allowed a margin of safety, but if you did contribute too much I don't think it would be a disaster as - so far as I understand it - the worst thing that happens is just that hmrc will just tax you on the bit you overcontributed.

There's a guy called David Fountain who does a lot of you tube videos on teachers pensions which can help a bit more, but none of them told me precisely how to work things out. Alternatively, the calcs I did right at the start in the thread above ended up being broadly correct, except I had to deduct the inflation value rather than add it in in order to estimate the amount of allowance already used and also the inflation value should have been 3.1% for this year as it is September inflation that matters.

[kempiejon]

I think wanderer has sumarised it but there's another thing that I found useful when I decided to contribute my total salary to the SIPP. There is an allowance from the previous 3 years of working that can be carried over. You're still limited to £40k or earned income whichever the lower. As I understood it if I made an error in calculating (and one does have to guess) then HMRC would require repayment of the extra reclaimed tax but for low amounts this could be claimed from the following year.