Maximising annual pension allowance and carry forward

[Jupiter01]

I am trying to maximise my 60k annual allowance and carry forward for previous 3 years. I would like to pay this on 6 April 2024 as a lump sum but this needs me to estimate what my workplace pension contributions may be for this financial year. This can fluctuate based on bonus payments.

What happens if I am slightly over on my annual contribution? I would have automatically received the auto tax relief as my pensions contributions are made up of my workplace pension and a SIPP.

To complicate matters further, I am a high rate tax payer ad claim the additional tax relief through my Tax Return.

I am trying to calculate this as accurately as I can but foresee fluctuations in my workplace pension contributions in the next tax year. I could massively undercut this if this is likely to result in penalties but feels as though I am leaving money on the table...

[Jholm]

I might be missing something but why not just make a contribution on 5th April, based on actual figures on the final day of the tax year, rather than the first of an upcoming uncertain one?

Can still use carry forward for the same number of years, otherwise, you lose one year's carry forward (unless already used).

[Jupiter01]

I might be missing something but why not just make a contribution on 5th April, based on actual figures on the final day of the tax year, rather than the first of an upcoming uncertain one?

Can still use carry forward for the same number of years, otherwise, you lose one year's carry forward (unless already used).

Already used the previous year and want to use the new year allowance (plus some carry forward) on day 1. Hence, the uncertainty of the upcoming years workplace pension contributions. Hope that makes sense

[someone]

Can't really help but a cautionary tale:

I was paying monthly into a pension, expected to have 40K annual allowance. Got told my job was at risk mid June, worked to mid July, PILON plus generous redundancy (c. equiv. to 6+ months base salary was taxable), no enforced garden leave, got another job offer before I actually finished and started the new job at a higher salary mid August.

This all came totally out of the blue with no warning. The layoffs came about as part of a "can't be refused" takeover offer - the acquiring firm only wanting part of the business as they already duplicated the other part.

So I went from expecting 40K of annual allowance mid June to knowing it was going to be 10K mid July and I was going to exceed the annual allowance. (No carry forward available)

To make things even more galling, my new employer had a pension match that I opted out of in Y1 because I was already over the annual allowance - but I discovered later, that they would make a cash-equivalent payment (reduced by the employer NI) for people who would exceed the annual allowance so couldn't (efficiently) pay into a pension.

I never found out whether the 30K tax free counted towards income for the pension personal allowance as my taxable income alone was enough to take me right through the taper band that year.

Much better to make payments at the end of the tax year when all unknowns should be known...

[Jupiter01]

I’ve been doing some reading on this and think that one would just have to repay the auto tax relief that was received for any amounts over 60k. There are no penalties or tax as such. Can someone please confirm. Thanks

[someone]

I’ve been doing some reading on this and think that one would just have to repay the auto tax relief that was received for any amounts over 60k. There are no penalties or tax as such. Can someone please confirm. Thanks

There are no penalties for overpaying into a pension but you won't get any tax relief on the way into the pension - so if you, for example, overpay by 10K (inc tax relief) then you'll have to pay 4k(4.5k) in tax on that money - and then you'll end up paying tax again when you take a pension.

I'm not sure about NI if it's employer contributions involved.

Putting taxed money into a pension, with the risk that the minimum age to take the pension might be bumped to 71 before you can take it out again, just to get up front tax relief on any growth seem like far too high a risk to me. But then I've already been bitten once by the changes to the minimum age you can take a private pension.

[Jupiter01]

Thanks for the reply. Exceeding the annual allowance would not be a deliberate approach. I was worried that I may do it inadvertently. Also, how does the tax man know that this has happened? Will they pick it up when I enter my claim for additional tax relief via self assessment?

[someone]

You have to tell then on your tax return if you've exceeded the annual allowance. I assume they don't check this and tell you so that they can charge you penalties a few years down the line. (An alternative explanation is that HMRC are totally incompetent but they say they're not...)