Pension annual allowance and carry forward rules

[miro2021]

I am trying to understand the rules on pension contributions and answers to the following 2 points in particular.

1. My employer contributions to my personal stakeholder pension in tax year 2016-17 were £48,000 which exceeds the £40K annual allowance. Do I need to pay tax on the extra £8K ? I had a letter from my pension provider saying that the allowance was exceeded but I'm not sure what I should do, if anything.

2. What is the maximum amount I can contribute to my pension this current tax year to maximise tax relief (current salary 76k). I believe I can carry forward unused allowances?


I've listed my employer contributions for the last few years below and would be grateful for advice on the above points

2017-18 employer - £2,675.32 and personal £2,612.92
2016-17 employer - £48,000.00
2015-16 employer - £26,000.00
2014-15 employer - £26,000.00
2013-14 employer - £24,000.00
2012-13 employer - £18,000.00
2011-12 employer - £16,000.00
2010-11 employer - £21,500.00
2009-10 employer - £16,000.00

[greybags1]

The maximum you as an individual can pay into a pension scheme and get tax relief on in a particular tax year is 100% of your 'net relevant earnings'. Sums you pay above this will not get tax relief.

Tax relief is further restricted if the total gross amount of contributions paid into your scheme by you and your employer exceed £40k in a year. However, to determine whether an annual allowance (AA) charge arises on you one should look back to the previous 3 years and see if there is any used relief.

Assuming only employer contributions have been made up to 2016/17 (ie no employee contributions) there is unused relief so no annual allowance charge should arise on the apparent overpayment in 2016/17. NB for future reference if an AA charge does ever arise and it's more than £2k you can ask the pension scheme to take the monies out of your pension pot to pay the tax.

Again at face value it looks like you have unused AA relief of £14k from 2014/15 and 2015/16 making a total £28k. Coupled with the £40k for 2017/18 you have £68k available re avoiding the AA charge. Since this sum is < 100% of your salary this is the maximum gross amount you can pay and get tax relief tho' you will loose the benefit of your personal allowance at this level.

Hope this helps.