Tax relief on AVCs

15% of salary, irrespective of age. This includes any "normal" contributions to your scheme. If your earnings reduce, your maximum contributions reduce proportionately. If your income is a mixture of pension and earnings, you can only pay AVCs based on the earnings.

"Gareth Kitchener" wrote

Agreed - but note that if standard scheme contributions are, say, 5% - then you *might* be able to contribute more than twice this to an AVC :-

Eg if "pensionable salary" is 12,000 -> normal scheme contributions are

50 per month; But if "total salary" is 15,000 you can pay upto "15% of 15K -less- 5% of 12K" ie 137.50 per month.

Firstly, let me apologise for the length of this reply but it is demanded by the

complexity of the subject matter. My reply is not intended to be comprehensive nor

definitive and you should acquaint a professional adviser with specific details of your

situation to obtain advice tailored to your specific circumstances.

The maximum contributions an employee can make to an occupational pension scheme are

limited to 15% of remuneration for the tax year. Remuneration for these purposes is

salary, commission, bonuses and taxable benefits-in -kind. Income from share incentives

schemes and termination payments is excluded.

It is now mandatory for employers to give employees who have a shortfall between the

contributions they have made and those they could have made, the opportunity to make good

the deficiency by means of Additional Voluntary Contributions (AVCs) to either the

employer's scheme or to a freestanding scheme.

The total contributions including AVCs are limited to 15% of remuneration for the tax

year.

Alternatively, it is open to the employeee make personal pension contributions to a

Revenue approved scheme and these have slightly different contribution limits based on net

relevant earnings.

Relevant earnings are are made up of any chargeable income derived from:-

- an office or employment (other than one covered by an occupational pension scheme);

- income from a trade, profession or vocation whether as an individual or as an active

partner within a partnership;

-income from furnished holiday lettings;

-income from patent rights treated as earned income because you were granted a patent for

your own invention.

Net releavant earnings are the total of relevant earnings less any expenses of employment,

losses from activities which would have been relevant earnings if a profit had been made,

the payment of annuities or royalties out of the income.

From 6 april 2001 with the introduction of stakeholder pensions, a person can make a

contribution (subject to limits) if:

a)- he has actual net relevant earnings for that year; or, b)- he does not have relevant earnings but is not in pensionable employmrnt for the entire

year but one of the following applies:

- at some time in the year he is resident and ordinarily resident in the UK; or,

- he was resident and ordinarily resident both at some time in the last 5 years and when

the personal pension arrangements were made; or, c)- where neither a) nor b) applies but he was in pensionable employment throughout the

year and:

- one of the 2 conditions in b) is satisfied;

-he was not a controlling director of any company at any time during the year, or in the

preceding 5 years (ignoring those before 2000/01);

-forat least one of the preceding 5 years of assessment (ignoring those before 20000/01),

his total grossec up remuneration from each office and employment held on 5 April in each

tax year does not exceed the remuneration limit for the year (currently £30,000)

From 6 april 2001, all personal pension contributions are treates as paid after deducting

basic rate tax regardless of whether you are employed or self-employed. This means if you

are a basic rate taxpayeryou receive the correct amount of tax relief at source.

In the case of higher rate taxpayers, the gross amount of contributions is deducted from

relevant earnings and then tax is calculated.

From 2001/02 onwards relief for personal pensions contributions is given up to a maximum

of the greater of;

- the earnings threshold for the year (currently £ )

- the maximum contributions payable.

The maximum contributions payable are a percentage of your net relevant earnings according

to your age at the beginning of the tax year, as follows:-

35 and below 17.5% 36 to 45 20% 46 to 50 25% 51 to 55 30% 56 to 60 35% 61 or more 40%

For personal pension schemes, net relevant earnings are subject to an earnings cap and any

earnings in excess of the cap are ignored. For recent tax years the cap has been as

follows:-

1993/94 £75,000 1994/95 £76,800 1995/96 £78,600 1996/97 £82,200 1997/98 £84,000 1998/99 £87,600 1999/00 £90,600 2000/01 £91,800 2001/02 £95,400 2002/03 £97,200 2003/04 £99,000

I hope this is of some assistance.

John Pointon "In business to grow your business"

A couple of points for you to consider. If you are able to buy additional years, that may well be more cost effective than going down the AVC route. Also you may want to look at a stakeholder pension because the commision you pay will be a lot less than if you buy AVCs.

Many thanks for your reply. I work in local government with no other income. My income is a little over 30,000.

My understanding from this and other posts is that my contributions are limited to 15% of my income towards added years.

I am slightly confused by "Alternatively, it is open to the employee make personal pension contributions to a Revenue approved scheme and these have slightly different contribution limits based on net relevant earnings." Can these be made in addition to the maximum AVCs and I presume these contributions to these funds are not subject to tax relief?

"Fred" wrote

This is the crucial bit - "no other income"

"Fred" wrote

Correct.

"Fred" wrote

You need extra earnings, where you are *not* a member of an occupational scheme, to be able to pay to a PP. You cannot be both a member of an occupational scheme *and* pay contributions to a PP in respect of the same employment.

... unless you earn less than £30,000 and are not a controlling director, in which case you can pay up to £3600 to a PP,

In message , Fred writes

I've snipped the rest because I think the key to best advice here is the words I have left unsnipped.

What makes you think you NEED to 'add years'?

(BTW, most other posters are addressing AVCs, possibly because of your heading, but AVCs arent necessarily the same as adding years.)

(BTW2, I HATE AVCS)

(but ADDING YEARS may be a good idea in some circs)

What is your occupation? And do you mind telling us what your salary is?

Yes... five tax years.

Except that the clock only started when the regulations came in a couple of years ago, I don't think you can take 1998 as the base year ... ?

Sorry... you're quite right. Tax year 2000/2001 is the earliest one that can be used.