I'm trying to understand how to calculate how much money I can pay into pensions this year. I understand how to calculate the annual allowance, which isn't the problem: instead, I need to understand how to avoid contributing more money than I have earned.

The issue is in calculating the contributions to my defined benefit pension. Here is a simple example using made up numbers: if I earn 30,000 per year before tax or NI, and contribute 300 per month to a defined benefit pension, I would naively think that this would leave 30,000 - 12*300 = 26,400 that I could contribute to a SIPP.

However this doesn't take account of my employer's contributions, or of the defined benefit. For the annual allowance calculation, the contribution numbers don't matter; instead I take the change in the annual benefit and multiply it by 16. Is this what I need to do here, or do I do the calculation above, or do I do something different to either of these?

1 Answer 1


Your first calculation is correct. Any contribution your employer is making, or any increase in value in the annual benefit, is also (implicitly) income to you that is immediately getting spent on your pension. So even if you did consider it, it would just cancel out.

Bear in mind that you don't necessarily want to contribute your entire income each year - probably you don't want to go below your normal marginal tax band, unless you have a lot of spare money you want to get into your pension.

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