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Where Taxpayers and Advisers Meet

Pension contribution calculation help needed

Nimi Jane
Posts:3
Joined:Wed Apr 03, 2019 10:19 pm
Pension contribution calculation help needed

Postby Nimi Jane » Wed Apr 03, 2019 10:33 pm

Hi,

I have been trying to understand how taxable income works and how to calculate the optimal pension contributions for my unique circumstances this financial year (2019-2020). I find myself in a position (just for this financial year) to have a PAYE income in the range of 160k and am trying to find the amount I can put into my pension so as not to loose too much of my income to tax. I did come across this as a guide to pension contributions - https://www.youinvest.co.uk/sites/default/files/AJBYI_Guide_to_annual_allowance_tapering.pdf

And based on this have come up with the following calculation breakdown:

PAYE Income = 160,000
Employer pension contribution (at 5%) = 8000
Pension contribution = 60000 (i.e. 40,000 current year + 20,000 carry over from previous year)
Which results in,
adjusted income = 168,000
threshold income = 108,000 (168,000 - 60000)

Therefore no tapering of pension allowance as the threshold is less than 110k.

So the final total deductions for the year = 33,464.16 (i.e. 27,500 income tax + 5964.16 NI)
So net income = 66,535.84 (i.e. 160,000 - 60,000 - 33,464.16)

I would like to know if my calculations here are correct and would appreciate any insights into anything I may be missing here.

One thing I am not quite sure about in the above is with regard to the 40k annual limit (does this include the employer contribution and/or any other contributions? and if so does this mean the actual amount I can contribute would actually be 32,000 i.e. 40,000 - 8,000?)

Jholm
Posts:360
Joined:Mon Mar 11, 2019 4:22 pm

Re: Pension contribution calculation help needed

Postby Jholm » Thu Apr 04, 2019 10:56 am

Annual allowance includes gross contributions; personal, employer etc... There is an element of carry forward of unused allowances to consider also.

Given the potential tax at stake mixed with the fact you earn enough to afford one, I would suggest you appoint an accountant to really run through the figures in detail. A few hundred quid to get it right could save you in the long run, especially if you get it wrong and get lumbered with tax charges due to contributions in excess of your annual allowance.

someone
Posts:692
Joined:Mon Feb 13, 2017 10:09 am

Re: Pension contribution calculation help needed

Postby someone » Thu Apr 04, 2019 1:35 pm

Looks reasonable to me.

The pension contribution MUST be made in this tax year for it to work. You need to be careful because a withdrawal from your account/credit card today might not be credited, and counted, in this tax year.

I'd recommend checking with the pension firm.

Also note that your calculation is the gross amount. The actual payment from your account might be 48k instead.

(I got bitten by 'wrong tax year' stuff because, in the mini tax year, I assumed that a payment made from my salary in the first half would be credited in the first half, but it wasn't so I overpaid in the second half and only found out after the end of the tax year)

someone
Posts:692
Joined:Mon Feb 13, 2017 10:09 am

Re: Pension contribution calculation help needed

Postby someone » Thu Apr 04, 2019 1:41 pm

Just to add, the tax relief is 60% for the numbers you give so an extra 8k (assuming you can) gets your income below 100k and you get all your personal allowance.

someone
Posts:692
Joined:Mon Feb 13, 2017 10:09 am

Re: Pension contribution calculation help needed

Postby someone » Thu Apr 04, 2019 1:59 pm

Sorry, just seen it's next year you're talking about so lots of time to sort this out.


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