How much of my salary can I put into my pension?

[roses2]

With current and saving accounts offering a paltry sum of money, I am looking to increase my contribution to my work pension so my money doesn't sit in my current account earning nothing. I have a decent amount of savings (earning 0%) and I don't need my monthly salary for the foreseeable future. Of course I will amend this as situations change but for now, for the next 6 months at least, I am looking to pay more into my work pension.

I am a little confused what I have read here:

www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/how-much-can-i-pay-into-a-pension

The actual amount you can pay in a tax year for tax relief purposes is the greater of:

A gross contribution of £3,600 or:
100% of your earnings, subject to the annual allowance.

Does this mean if I pay more than £3,600 into my salary then I still pay tax on my full monthly salary (only minus £3,600) then tax again when I draw down my pension??

Has anyone does this before? What's the most efficient way given current interest rates?

Following as I think I'll be putting more than 3.6k as I've increased my amount

You can put in up to £40k per year and benefit from tax relief. You can also make use of up to three years' allowance at once. So if you had paid nothing in for the last 2 years, you could contribute up to £120k this year.

The £3600 relates to people not working/earning less than £3600 a year.

The important part from the text you've quoted is the "greater of".

If you're employed you can usually pay in up to 40k per year, or 100% of your salary, whichever is lower. If you pay in from your after-tax salary (i.e. not through salary sacrifice before tax) then you'll automatically get tax relief added. Be careful not to exceed the maximum as you'll incur penalties. The maximum includes all your pension pots, and all contributions including your own payments, employer contributions and tax relief top ups.

Thanks @joeysapple! Good to know I can pay in three years worth.

Now to decide how much to put in vs how much to keep aside (at 0% interest!) to help my kids house deposit which they'll need before I retire....

If you pay in from your after-tax salary (i.e. not through salary sacrifice before tax) then you'll automatically get tax relief added

Does this mean if I take some money paid from savings account and move to my pension eg £50k then I get back whatever tax I paid on this?

Following this with interest. Is it OK if I ask a related question? God, I'm useless with money.

I'm only 5 years from retirement. Towards the end of last year I got into a panic about how pathetic my workplace pension was, and decided to salary sacrifice to the max allowed and put the entire remaining salary into AVCs while living for a while on my other savings. Am I doing this wrong? Am I going to incur some kind of penalty? I don't earn much so this really matters to me.

By the way, I had heard about the three years thing, but when I asked my workplace pension dept if I could also pay a lump sum in from my savings to bump up my last three years contributions I was told no, you can only pay in more going forward. Does it depend on what scheme your'e in? They were very emphatic and seemed a bit shocked that I'd asked such a seemingly stupid question.

If you carry forward unutilised pension allowance, you can only claim tax relief based on the amount of tax you've paid this year.

So as a rough example, if you have earned £60k this year, then you will only be able to claim 40% pension tax relief to the extent you have paid the tax in that bracket this year. So let's say that's about £20k ish.

So whilst you can carry forward the amount you can pay in, you are still limited in terms of tax relief by what you have earned in the current tax year.

They say you should put 1/2 of your age so if you’re 40 then you should put 20%.
Im putting just below but not by far to my ages half

The 1/2 your age thing is a real finger in the air to get people thinking though, and to make the point that the younger you start, the less you have to pay in as a % each year, because you’re never playing catch up.

So it’s not that a 20yo should pay 10% and a 40yo should pay 20%. A 40yo should pay 20% if they’re only just starting a pension.

Each person really needs to look at their individual needs to determine an appropriate %. But it’s definitely a rule of thumb to get you thinking.

@joeysapple

You can put in up to £40k per year and benefit from tax relief. You can also make use of up to three years' allowance at once. So if you had paid nothing in for the last 2 years, you could contribute up to £120k this year.

The £3600 relates to people not working/earning less than £3600 a year.

I don’t think that’s quite true. You can carry forward the previous 3 years unused allowance, but you’re still capped at paying in no more than £40K or your current tax year earnings - whichever is lower.

So if you earn £30K, then you can pay £30K in - not £30K + £90K from the previous 3 years.

So it’s a similar point to @savvy7 that you can’t receive any more tax relief that is due in the current year, but it also means you can’t even pay it in. (you wouldn’t want to anyway, without the tax relief, unless for IHT purposes maybe...)

You can add it in bits over several years to maximise tax relief though. It really works best if you have significant savings and have just moved from a low salary to a high salary - the year after maternity leave, or a few years part time, for example.

www.which.co.uk/money/pensions-and-retirement/personal-pensions/contributing-to-a-private-pension-explained/how-the-pensions-annual-allowance-works-ac8d33u9v9ch

Op have you maxed out your use allowance too? If you're saving for 5+ years but pre retirement, you should look to invest. Like you say, no point sitting in an account with no interest. If you're worried about the risk of investing, just remember your pension pot is invested!!!

Isa allowance, not use!

Hi, yes I've maxed out my lifetime ISA (the one that pays £1k if you put in £4k). I've not put in another cash isa ad no one is offering decent rates!

I've now increased my work pension to £40k/year.

Thanks for all your help!