Pensions

[doobedooboom]

Does anyone know how the annual charge works when you pay more than you annual allowance into your pension? I don't know whether it means you end up paying two lots of tax (ie you don't get the tax relief on contributions and also have to pay a further tax charge) or whether it is just one charge or you get the tax relief but then have to pay the annual charge.

Taking pensions advice as soon as I can but in the meantime wondered if any wise Mumsnetters understand it and can explain it in incredibly simple terms!

You can pay over 40k into your pension if during the previous 3 years you have underpaid. If you have overpaid and have not underpaid during the 3 previous years, you have to pay normal tax over that amount over 40k you have put into pension.

Ah so it is just the one tax charge and not two? That would be a more acceptable outcome thank you! (Although I guess at that point the money is in the pension so you have to pay the tax out of the rest of your income so it would be painful anyway)

Can you go back a step… why are you doing this? It makes no sense to pay more than the Annual Allowance and carry forward.

@Testina OP may be in a DB scheme where there is no choice. I have seen a £10k pay rise resulting in a £28k tax charge due to how the increase in the value of the pension is calculated.

If you are in a public sector pension like the NHS pension scheme you have no choice

Yes, but I find that in NHS it’s widely understood because (a) everyone is in the same pension scheme (well - one of the many variations of it 😭) and there’s greater salary transparency because of clear bands.

I am not doing it but only quite recently at a point where it isn't the straightforward choice it once was to pay into a pension and I want to understand it - will see a mortgage adviser soon. I just want to understand if the downside is that you don't get the tax break you normally would then maybe I should still put money in - I will pay tax on it anyway no matter what I do with it - so getting it out and locked away might be better?