Pension - so confused by conflicting advice

[MiddlesexGirl]

I have spoken to PensionWise, the Pensions Advisory Service and my current pension provider and they're all telling me different things so which one is right?!

I have a lowish income .... say £10k to keep things simple. I pay a small amount of tax and NI on it. I also have some savings which I pay a small amount of tax on.

I want (I think) to take some money out of the savings and put them into my pension but in trying to find out how much I can put in and still be eligible for tax relief I'm getting many different answers.

A says I can pay in £40k. I don't believe this, I believe I can pay in up to my annual earnings but maybe I'm wrong.
B says I don't have to deduct any employer contributions already made, only my employee contributions.
B says that I can pay in up to my annual earnings minus the 20% tax relief so 80% of my earnings, not 100%.
C says I can pay in 100%; the 20% tax relief is on top of that.
A says I can include my income from investments as well as my earned income.
A says I can also carry forward £40k per year from the previous 3 years.

Please please can someone tell me what I can do so I get the tax relief and don't have to do any messing around with my tax return and repaying tax. And if I can make payments to cover the last 3 years where I haven't utilised the maximum amounts. Would be very grateful.

OK, I'm not a FA, but this is my understanding, which is based on my own situation.
A says I can pay in £40k - This is your annual allowance, from all sources - personal contributions (incl tax relief) and employer contributions
B says that I can pay in up to my annual earnings minus the 20% tax relief so 80% of my earnings, not 100%. Yes - this is correct. So e.g. for £10k salary you can contribute £8k and £2k tax relief will be added by inland revenue. HOWEVER this combined will account for £10k of your £40k allowance for the tax year.
A says I can include my income from investments as well as my earned income. I don't think this is true. I'm a landlord and can't use property income.
A says I can also carry forward £40k per year from the previous 3 years. Yes, this is known as 'Carry Forward'

A sounds the most informed here - which source of info is that?!

A is the pension provider!

How can both the £40K and the £10K be correct? Surely if I only have £10K the £40K is irrelevant?

The £10k would be the maximum personal contribution (incl tax relief) you could make, but your employer could contribute a further £30k, up to your £40k annual allowance.

I think other people can make contributions on your behalf, eg a spouse on behalf of a SAHP or a parent on behalf of a child. So it doesn't matter if you don't have this income yourself.

Also, I know your numbers are only for illustration, but if your income is below the £12k or so personal allowance, you don't pay any tax on it, not that it's relevant for your question anyway, I believe you still get the tax top up, even if you haven't paid the tax yourself.

Also, you're quite unlikely to be paying tax in your savings unless you have more than about £200k due to personal savings allowance and how interest rates are at the moment.

Thanks for the replies.
So if I'm to understand this correctly my husband or anyone else could pay in £30k but not me? Or does this just mean anyone can pay it in but you only get the tax relief on the earned income?
I do pay interest on savings/investments, hence thinking, what with interest rates being so low, that my money is better out of the savings and into the pension.

@OverTheHill50 - technically yes, however the contribution should be 'Wholly and exclusive'

I.E proporitante to the value of the individual concered.

HMRC would struggle to see justification in a £10k p.a employee receiving a £30k pension contribution.

In addition, it is very unlikely you will be paying tax on your interest as you receive £1k tax free allowance on interest and £2k on Divi.

I would seek professional advice, not that on a forum. If you make a wrong choice, then HMRC will penalise you.

@BarbaraofSeville 'I think other people can make contributions on your behalf, eg a spouse on behalf of a SAHP or a parent on behalf of a child. So it doesn't matter if you don't have this income yourself'

This is untrue, the OP can pay up to 100% of her relevant UK earnings or £40k. This would be from her or from 10 people. Once again, this level of incorrect information could result in significant HMRC tax charges.

If no income she can pau £2,880 net

OK. So 100% of my income can be made in order to get tax relief. Anything above that doesn't get tax relief. The contributions can come from anywhere but mustn't exceed my income. And HMRC will add 20% (or 40/45% if I was a higher rate tax payer).

I do pay tax on the interest on my savings. That's why I have to fill in a self assessment return every year and have my tax code adjusted to collect the extra tax.

I've tried seeking advice from those who should know and as I said .... it's conflicting. It's a bit of a worry when even the professionals can't agree.

You must have a heck of a lot of savings to be paying tax on it.

Are you sure putting it into a pension is the right choice? Although the tax relief sounds attractive you'll be paying an annual fee of some sort; the money is tied up until a certain age; and then there are complicated ways to access the money if you want to pay the least amount of tax on it.

Have you considered a stocks & shares ISA? Is it actually a pension you want or just a way to get a better return on your savings?

You should take advice from a pension specialist IFA, they are qualified and indemnified to provide advice.

Correct in your statement, however the GROSS contribution can not exceed 100% of your income.

To pay tax on your savings, assuming an average deposit return, you would need over 220k in savings to pay tax

As an IFA I find it concerning that you have been given incorrect advice from PensionWise, the Pensions Advisory Service and your current pension provider.

To clarify for you, 40k is the maximum pension contribution in a year that can be made, but you have to have 'relevant earnings' to make that contribution. 'Relevant earnings' do not include income from investment, rental income or dividend payment. If your earnings from employment is only £10k that is the maximum contribution you or your employer can make (including 20% tax relief). If and only if, you're earned income exceeded £40k p.a. you could make a gross contribution of that amount and if you had unused allowances from the previous 3 tax years you could carry forward those unused allowances to make a larger contribution. However you can only use carry forward if you are eligable to make full £40k contribution. As you only earn £10k you cannot use carry forward.

You should of course be maximising your annual ISA allowance if not done so already.

Thank you @123sunshine.
Annual ISA allowance is maxed and looking at stocks and shares ISA for next year.
Will work out 80% of salary less mine and employers pension contributions and move some savings across to the pension.
Should maybe suggest to pension provider that they provide extra training to their advisors 🙄
PensionWise and PAS were less wrong though still somewhat worrying that they couldn't answer what seems to me to be straightforward questions.

To answer some earlier questions, I don't have very much in pensions at all, especially relative to savings, hence wanting to do a bit of redistributon. If I'd known I could put in £2880 a year even when not earning I would have done that as every little counts.

@MiddlesexGirl

Thank you *@123sunshine*. Annual ISA allowance is maxed and looking at stocks and shares ISA for next year. Will work out 80% of salary less mine and employers pension contributions and move some savings across to the pension. Should maybe suggest to pension provider that they provide extra training to their advisors 🙄 PensionWise and PAS were less wrong though still somewhat worrying that they couldn't answer what seems to me to be straightforward questions.

To answer some earlier questions, I don't have very much in pensions at all, especially relative to savings, hence wanting to do a bit of redistributon. If I'd known I could put in £2880 a year even when not earning I would have done that as every little counts.

One of the issues is that neither your pension provider, pension wise or PAS can you advice relating to your circumstances which seems to be what you’re expecting them to do! They can all only give you generic information and as you’ve found it is often conflicting.

As someone else suggested you need to pay to see an IFA , for them to assess your circumstances and then them give you advice....

I didn't need advice though. I needed straightforward information ie what are the rules determining how much I can pay in each year.
Unfortunately the advisors I spoke to didn't seem to know the rules themselves which is somewhat concerning.

On an earned income of around £10k you would also qualify for the full starting rate band of £5000 as well as the £1000 personal savings allowance, that would be nearer half a million in savings before you pay any tax.

@MiddlesexGirl

I didn't need advice though. I needed straightforward information ie what are the rules determining how much I can pay in each year. Unfortunately the advisors I spoke to didn't seem to know the rules themselves which is somewhat concerning.

I get that but if you dont know the rules yourself and neither do these other bodies ( who should know them by the way) it points to getting proper advice as the way forward ?

@ForensicAccountant

On an earned income of around £10k you would also qualify for the full starting rate band of £5000 as well as the £1000 personal savings allowance, that would be nearer half a million in savings before you pay any tax.

What is the starting rate band of £5000 please?

it points to getting proper advice as the way forward ?

I sympathise with the view that the information is clearly out there, so that it should be available. If only it were as easy as finding and IFA.

Over the years I have tried a few.

The first three I tried each gave me incorrect or surprising information on at least one point, for example the first saying that for a repayment mortgage, I needed to take out life insurance with them on top of that provided by my employer. The next suggested we use a mortgage provider which was on my shortlist so I went with that provider. I asked the advisor for his agent number to be paid the £800 finders fee. He said it wasn't worth the paperwork and was only interested in

Cont

Policies where he would get an annual payment.

I've spoken to any advisor recommended by anyone. They always suggest reorganising the portfolio in a way that I don't actually follow. One even suggested that there was not much scope for reorganising given my age so was not interested in taking me on as a client.

I can't work with someone who does not explain their thinking so find 'financial advice' exceptionally difficult to find.

Many people who recommend their advisor turn out to have done no quality checking and have just gone along with whatever was suggested. That's not what I call recommended advisor. I realise I sound a bit rant-y here but what is one to do?

Suggestions welcome

I have been in this situation.

Example:
Income last tax year £15k
I can pay in £12k and my pension provider will claim the top up of £3k.

Income current tax year £100k
I can put in £32k and it will be topped up to £40k plus £20k carried forward from last tax year and it will be topped up to £25k.
Total paid in over 2 tax years: £80k (£64k of my money plus the tax top up).
I can then claim back higher tax rate relief for the additional 20% tax I have paid on my salary over the threshold.

The limit is based on your income for that tax year and so if I only earned £20k the following year I would not be able to use the carry forward - you would need income of over £40k to do that.

I take it to mean that it is your & your employers contributions together have to be at or below that limit. Although it isn't something that has really troubled me as my employer puts in the bare minimum.

I use moneysavingexpert- if you put your figures in on the pensions board someone will work it out for you.

It can only be based on earned income and not interest/ rent from a BTL.

You can put in extra to your pension but you would have to ask your provider not to claim the top up - are you using all of your ISA allowances? I don't think I would bother putting into my pension unless there was a tax top up.

@Alwayscheerful there is a starting rate for savings income of 0% on £5k. It would only apply if your earned income is less than personal allowance + £5,000. It is in addition to the personal savings allowance of £1k for basic rate taxpayers.