Invest future surplus income into a money purchase
Contributions of surplus income into a money purchase can be scheduled on the Pensions > Money Purchase screen.
Enter the gross annual contribution in the Annual Contribution £ field.
Contributions can be entered either as a total annual amount or as a percentage of salary. For example, an entry of 8% would mean that the client plans to contribute eight per cent of his future salary to this pension.
Note: This annual contribution amount should always be a gross figure, which the software will net down annually by 20% when applying tax relief. Contributions will also provide income relief as the software calculates annual taxes.
There is usually no need to select a contribution period for future pension contributions. It is implied that the future contributions will be made from the owner’s income and once that income ends, so too will any planned contributions. If this is the case, there is no need to select start and end events on the Time panel to set a contribution period for a pension, as one would for savings or investments. The software will make an implicit link between the money purchase and the owner’s income.
Moreover, in most cases you will not need to link the money purchase to any particular income source. If the owner of the pension has only one income source entered on the Employment screen, the software will infer that this income will be the source of the contributions. Once the income ends, contributions to the money purchase will also cease, unless set otherwise on the Time panel.
Note that pension contributions are limited to either salary or the current £40,000 annual maximum, whichever is the lower of the two figures. Regular earnings define one’s pensionable salary. Bonuses and dividends are not pensionable income. Without supporting earnings – which are entered on the Employment screen – pension contributions are limited to £3,600 per annum. The software does, however, allow for additional contribution allowances to be carried forward from up to three years prior to the start of the plan. These carry-forward contribution allowances can be entered on the Taxes screen.
You may encounter some cases, however, in which a direct link needs to be made between income and pension. For example, your client has multiple income sources and wants to contribute a percentage of one of these incomes to a money purchase. In this case you may link the pension to that particular income on the Pensions > Money Purchase screen.
1. Expand Advanced Settings.
2. Select Contributions.
3. Click the dropdown list, which display all of the owner’s incomes. Select the appropriate income and click Link.
A link icon will display next to the money purchase in the ledger, to the right side of the screen. Click this link and the name of the directly linked income will be shown. A percentage based contribution would be considered a percentage of the linked income. Also, contributions will end once the linked income ends, unless the contribution period is set otherwise on the Money Purchase screen’s Time panel.
Check the charts for these future contributions.
To view these contributions, click Let's See.
Select any bar of the chart during the contribution period. The chart legend will display.
Click Detailed Info. The chart details panel will display.
Select the Pensions the tab.
Planned contributions will be shown in the Contributions Scheduled column, which will show both the amount of the planned contribution and the amount of the actual deposit. The software will take the contribution amount, which is assumed to be a gross contribution, and will net it down by 20% to account for tax relief.
The portion of the contribution provided through tax relief will be shown in the adjacent column under Contributions Unscheduled. Unscheduled contributions shows contributions that are not taken from the contributors income, which may also include employer contributions.
Is surplus income assumed spent or saved?
Retirement Income (Webinar 2)