Why would anyone pay over £60k a year into pension?

[Whitesky75]

that really. Are there any other benefits in saving more that £60k a year in a pension wrapper?

Significantly less tax. Can bring you under the 100k cap allowing access to childcare tax account and funded childcare hours. Could possibly bring you under the 80k cap to allow for some child benefit.

My first thought too.

Professional sportspeople who have a short career probably do, as they are only on maximum earnings for maybe 15 to 20 years.

After our children were working themselves and we had finished paying the mortgage we paid as much as we could into our pensions as time was getting on for us and we had a lot of catching up to do.
I think one of the first questions to be asked when doing CMS questions is ‘how much do you pay into your pension?’

Sensible tax planning!

You can still get tax relief on contributions over £60,000 if you didn’t use all your allowance in the 3 previous tax years. Using carry forward you can pay in up to £180k. You just need to have a salary of at least £180k on which you pay tax.

As some other’s have said exceeding your allowance can still be tax efficient. There’s no CGT or IHT on pensions. For very wealthy people it’s part of their estate planning.

Outside of having unused previous years' allowance available, there would still be some very limited circumstances where it might make sense.

The £60k personal limit includes what your employer pays in for you, but if you pay in the full £60k gross and they pay in another £20k for you, yes you'd get taxed on the £20k (the annual allowance charge is equivalent to your tax rate) but you'd still get the net payment into your pension so £11k or £12k etc, extra into your pension, depending on your tax rate.

So in that case you'd be better off overall than if you didn't exceed the annual allowance.

The employer can also offset what they contribute against corporation tax, as far as I remember.

Carry forward unused allowance from prior years
Because they have volatile income and pension contributions are set as a percentage (some bonus schemes allow pension nomination but this is done before the bonus amount is announced)
To take advantage of loop holes, for example if employers pay pension AVC during parental leave, setting the AVC high will allow free money they wouldn’t otherwise recieve.
To reduce income for childcare eligibility.

But that's the point of the £60k cut off 're tax relief. It's to discourage you from putting money into the pension and to put it in other savings. The reason being that pension fund investments are often low risk, long term in aim. A government will want to spread the nature of investment.
plus they don't want people racking up huge pension pots to avoid inheritance tax...so there's a limit on tax relief

Tax relief

Not losing personal allowance when you hit £100k pay

Not losing free childcare hours

If being made redundant to avoid paying tax on the amount over £30k you can utilise carry forward to use up previous years limits if you have relevant earnings.

I understand about the 3 year carry, but is it the case that it’s capped at your annual gross salary regardless? So someone earning £42,222 gross in 24/25 could pay in a maximum of £42,222 in 24/25 regardless of spare allowance from the prior 3 years?

I don’t believe so. I think you can pay more in, up to the £60k per year if you have relevant earnings. So in the case where you have a redundancy payment you can pay this in even if over your annual gross salary.

That's likely to change in the budget....

Not sure about redundancy payments coming into it, but you can only contribute up to your earnings in the tax year.

This is the problem NHS consultants were having with their pension. You are either all in or all out. Even if you reach your maximum for that year, contribution keeps being deducted from your salary and the NHS keep paying theirs into your pot - there is no turning of the tap when you hit £60k (or £40k as it was a year or two ago).
Sounds great except you are hit with a tax liability which you cannot control.
So the only ways to avoid a massive tax bill are to (a) leave the NHS pension altogether (b) stay in the scheme and cut back to part-time. The latter means you lose income for the present day so some do more private work instead.
There is a big call for consultants to work overtime (waiting list initiatives) to reduced backlogs but they ended up paying more in tax that it became financially punitive.

I work in NHS and we lost a number of senior consultants as a result of this. Post COVID , lot of consultants worked overtime to catch with the backlog but were penalised for their work.

This is a really important point. If RR cuts the annual allowance it creates a huge uncertainty for people who have been in DB schemes for a long time and it’s a massive disincentive to continue working for e.g. NHS consultants

It's not just DB schemes.

Public sector DB schemes are already massively more generous than any DC scheme so my concern is more for DC members who will now have an even harder time of hoping to get close to the same benefit as DB if what they can contribute is further limited.

And even worse for DC scheme members will be if the higher rate tax relief is binned.

Came to say this. If anyone is interested the BMA had a decent webinar recorded on it.

Yes, cutting the annual allowance would also be a problem for people in DC schemes. I would say that both would be affected by a cut but in different ways.
The point on the DB schemes is a distinct problem of uncertainty that can't be controlled and is often not apparent until months after the end of the year, leaving you with an unexpected and unpedictable tax bill that you can't avoid. As PPs have said, that leads to senior, and often much needed people, deciding not to bother. I wasn't a massive fan of the previous government but Hunt raising the annual allowance was sensible.

I thought £60k was the maximum limit you could pay so I dont see how anyone could be paying more in.

Because you are close to retirement and need all you can get and/or you employer matches a proportion of your pension payments.

You can although you wouldn’t want to. See my earlier post about the NHS pension and the issues it has caused consultants, which has led them to cut back hours and decline to do extra paid work and so there is a growing backlog.

Because they want to reach financial independence and retire early. Once you can remove 4% a year and live off that it won't drain the pot.