What should I do with pension supplement payment

[MsRollersk8er]

Hi I am very fortunate to be in a position where due to a bonus my earnings have resulted in my pension allowance being reduced to £10k this year. This means that the 15% my employer would have contributed into my fund will be paid to me as a supplement through my salary instead. Are any other mumsnetters in this position and if so what have/would you do with the supplement? I have saved into my pension since age 18 and at 45 now have a £600k pot, which will continue to grow for the next 12 years, so to get best value I am unsure if I should pay my supplement it into a separate private pension or start using my ISA allowance to build up isa savings or pay it into my partners/children's pension instead?

If your pension allowance is 10k this year and therefore your company can’t pay the 15% into it, then how can you pay it into a separate pension? If your allowance is 10k, then it’s 10k (and assume you’ve already reached this limit?).

Why is it 10k? Are you subject to tapered allowance because of your income or have you started withdrawing money from your pension ?

If you can’t add any more to pension then an ISA makes sense or to your children’s ISAs or pensions if applicable.

It has been tapered due to income. They will pay it as a supplement instead so I will pay tax and ni on it. I can then do what I want with the amount after deductions, including paying into a private pension as I wont claim back tax relief on the contributions. They can’t pay it into my work pension as my contributions will be £10k this year.

Are you sure you haven't got unused contributions brought forward, which could be used to cover any contributions (& tax relief) this year - meaning the tax charge for exceeding the contributions allowance wouldn't be due if you did make pension contributions?

I would be making sure it went into tax free savings e.g S & S ISA or cash ISA.

How would this work? How many years can you carry this forward? I’m in the same position and worked abroad for 15 years until 2022 so didn’t use my pension allowance at all!!! Didn’t know I could carry it forward!!

https://www.gov.uk/guidance/check-if-you-have-unused-annual-allowances-on-your-pension-savings

Yes, definitely look into carrying a prior year’s allowance forward if you can.

Also, start saving into an ISA as it seems you are a higher rate taxpayer. Income you take from a pension in retirement is taxable (because you had the tax benefit on the way in) income from an ISA (interest and/or dividends) is tax free - therefore if there is any chance you could be a higher rate taxpayer in retirement, it’s better to have some of your income from an ISA and some from pension. Ideally you would have income from pension including state pension up to just under the higher rate tax band, and any remaining income taken tax free from ISAs

Why would you lock up money in a pension without the tax relief and then subject this to income tax when you take it out?

As people above said, use carry forward allowance if you can - you can carry forward 3 years.

If you aren’t maximising your ISA allowance you absolutely should be. I’d crack on and put this years in before the end of the tax year and then next years after 6 April.

Will this be an ongoing thing or a one-off?

Thanks everyone. I don’t have any carry forward allowance left as in previous years put my bonus into my pension. So it’s £10k a year now going forward. Want to make sure I am using the supplement wisely, so will start with ISA for myself, will also look into what I can pay into for my partner as well as think if I gift him money he can pay into pension and claim some tax relief back. Someone on another thread I was reading also talked about pensions for their children so am going to look into that. I have always prioritised my pension so Isa’s are new to me 🙈