Contributing to your pension
Contributing to your pension
How much can I contribute to my pension?
The amount you can pay into any pension including a SIPP and benefit from tax relief is based on your earnings and how much tax you pay. The general rule is that you can contribute up to 100 per cent of your earnings, with tax relief applying on contributions of up to £40,000 per tax year. This £40,000 is called the ‘annual allowance’.
Like other pensions, one of the main advantages of a SIPP is the tax benefits you receive on your contributions. Personal contributions you make up to your earnings are given basic rate tax relief at 20%. But if you are a higher rate taxpayer, you can claim extra tax relief through your self-assessment. This is sent to you directly from HMRC.
For example if you earn £30,000, you could contribute £4,000 net into your SIPP and will receive £1,000 in tax relief.
What happens if I have income of more than £150,000?
For high income individuals the annual allowance of £40,000 is tapered. The maximum reduction is £30,000, meaning that someone with adjusted income of over £210,000 has an annual allowance of £10,000.
Adjusted income is all income chargeable to income tax plus any employer pension contributions paid in the relevant tax year. An income threshold of £110,000 also applies. If someone has a threshold income (earnings less personal pension contributions) of less than £110,000 they are not normally subject to the tapered annual allowance. Our taper relief guide provides more information including examples.
Can my employer contribute to my pension?
All UK employers must by law offer a workplace pension scheme and you, your employer and the government will pay into your pension if you’re enrolled into a workplace scheme.
Your AJ Bell Youinvest SIPP is not a workplace pension, but your employer can contribute to the SIPP and their contributions are paid gross as there is no tax deducted from them. Contributions paid by your employer count towards your annual allowance, but are not restricted by the amount that you earn. To set up a direct debit to allow for regular contributions to be made to your SIPP please ask your employer to complete a SIPP direct debit form and send it to us.
Can I contribute more than my allowance?
You can contribute more than your allowance as long as you do not exceed your UK earnings. If you make a contribution above your available allowance you will suffer a tax charge known as the annual allowance charge (AAC), this will effectively cancel out the tax relief you receive above your allowance. For more information on the annual allowance charge and how to pay it please read our guide.
When calculating your available allowance you should also take into account any contributions that your employer makes for you, as these use up your annual allowance too.
‘Carry forward’ is a rule that allows you to contribute more to your SIPP than the £40,000 annual allowance and still benefit from tax relief, if you have any unused allowance in the last three tax years.
To be able to use carry forward, you must have:
- Been a member of a pension scheme in each tax year from which you carry forward, even if you did not make any contributions.
- Used up your full annual allowance in the current tax year.
- Contributed less than £40,000 in one or more of the last three tax years. (This includes personal and employer contributions.)
- Earnings of at least the amount you are contributing, if you are making personal contributions.
Please remember that tax rules and allowances can change in the future and the amount of tax relief depends on individual circumstances. For more information please read our Carry forward guide.
What is the lifetime allowance?
The Government has set a limit on the amount of funds that you can have in all forms of pension you hold – this is called ‘the lifetime allowance’ or LTA. The lifetime allowance for 2016/17 is £1m.
If the value of your pension(s) exceeds the lifetime allowance when you come to take your benefits you will have to pay a tax charge on the excess. When thinking about how much to contribute to your pension one of the things you may need to consider is whether you’ll be pushed over the lifetime allowance when you come to access your pension. Our lifetime allowance page provides more information.
Are there any circumstances where I need to avoid paying contributions?
If you have registered for lifetime allowance protection, you could lose this if you or your employer make contributions.
If you hold enhanced protection or any of the types of fixed protection this will be lost if a contribution is paid. Primary protection and individual protection will not be lost if a contribution is paid.
Can I contribute to a pension if I am not earning?
You can contribute to a pension even if you don’t pay tax, or have no earnings at all – this includes children. The annual pension contribution limit for non-earners is £3,600 gross - a payment of £2,880 to which the tax man adds £720.
Can I still pay into a pension if I have already accessed my pension?
Once you have flexibly accessed your pension benefits you are only able to contribute up to £4,000 to all money purchase pensions each year, including your AJ Bell Youinvest SIPP. Additionally, it is not possible to make use of any unused contribution allowance from previous tax years to increase this amount. Our money purchase annual allowance page provides more information.
Pension allowance calculator
The HMRC pension allowance calculator will help you work out if you need to pay tax on your pension savings or if you have any unused pension annual allowances that you could carry forward.Find out more