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How much can you put into a SIPP?

Discussion in 'Retirement' started by Ivanhoe, Jul 13, 2020.

  1. Ivanhoe

    Ivanhoe New commenter

    The annual allowance for a pension is £40000 - so you can put in £40000 into your pension without incurring tax.
    However, if you contribute to the teachers pension, then you cannot put £40000 into a SIPP, as you have already contributed to the teachers pension.
    How do you calculate the teachers pension contribution within the £40000 allowance?
    letap likes this.
  2. diddydave

    diddydave Established commenter

    letap and Ivanhoe like this.
  3. diddydave

    diddydave Established commenter

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  4. Ivanhoe

    Ivanhoe New commenter

    Thank you very much for this Diddydave, this makes sense ( the x16 is very generous for the lifetime allowance calculation!).
    I assume the CPI is quoted at the time of the closing calculation. I also believe that 3 previous years of unused allowance can be added to the £40000?
    letap likes this.
  5. diddydave

    diddydave Established commenter

    I got tied in knots trying to figure it out...the headings on the FAQ page refer to Annual Allowance but when you read what's under them it talks about the Lifetime Allowance.
    Couldn't find a calculation for the Annual Allowance that makes any sense...I'd have through the increase in benefits would be the difference in your benefit statements but that seems way too low a change unless they add that on to the actual contributions you pay.

    With regards to using up unused £40k from previous years I believe so BUT I also think they won't give you tax credit from those years...so if you earned £46k this year you would get tax relief on all of it (minus the £12,500 which is tax free anyway) but if you paid in £60k using last year's allowance you still only get relief on the salary from this year.
    letap and Ivanhoe like this.
  6. Ivanhoe

    Ivanhoe New commenter

    Thanks again Diddydave, I have a significant redundancy payment due next year which will be taxed as if it is a part of my salary. I am trying to be as tax efficient as possible with this payment. Contributing to my pension seems the best way to go to achieve this.
    letap and diddydave like this.
  7. diddydave

    diddydave Established commenter

    I always thought that redundancy payments were tax-free (up to £30,000) but yes pension contributions up to £40,000 and less than your annual salary are good tax moves. Particularly if you are pushed into the 40% bracket.

    In simple terms if you can put it into a pension and then access that money soon thereafter as you reach 55, as a 20% tax payer, then you can make significant tax savings, and if you are a 40% tax-payer much more - though it does have implications for future pension contributions.

    If you can put £10,000 into a pension for example then::
    1: For a 20% tax payer instead of paying £2000 in tax you can, when you take it out, get 25% tax-free and the rest is taxed, so you pay £1500 in tax. Getting an extra £500.

    2: For a 40% tax payer instead of paying £4000 in tax then, so long as when you take it out you are now a 20% tax payer, you would also pay £1500 in tax. But for you this now means an extra £2500.

    The consequences though are that once you take the money out of the pension scheme you are limited no longer to £40,000 a year but just £4000.
    letap likes this.
  8. letap

    letap Occasional commenter

    If you have other savings to rely on, then you could in theory withdraw from the SIPP upto your personal allowance and make up the shortfall on living costs by drawing down on your savings. Once you reach 60 you could then start your Teachers pension payments. In that period you have minimised tax and NICs. You may choose to work as an examiner to ensure that you have enough NICs for maximum state pension.

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