LGPS, non-income-tax payer, and tax relief

jem16

hugo15 wrote: »

This is just the question I have been meaning to ask for ages. My wife works as a school dinner lady and is a member of the LGPS. As part of our joint pension planning I have been thinking about ARC payments for her to boost her pension. If there is no tax relief is this still a good choice or are there better options?

It's still a good choice if you are looking for guaranteed, index-linked pension with no risk to yourself.

The only other option is to pay into a PP or S&S ISA where the investment risk is on you (or rather your wife).

What is it you are trying to achieve?

hugo15

jem16 wrote: »

What is it you are trying to achieve?

Good question! I think I am trying to spread the risk........ I currently make AVCs into my defined contribution scheme but my wife only works 5 hours per week so her pension contributions are very low. I am worried that all our pension savings are in my name and if I pop my clogs early into my retirement then that might leave her financially exposed, even with a 50% spouses pension.

jem16

hugo15 wrote: »

Good question! I think I am trying to spread the risk........ I currently make AVCs into my defined contribution scheme but my wife only works 5 hours per week so her pension contributions are very low. I am worried that all our pension savings are in my name and if I pop my clogs early into my retirement then that might leave her financially exposed, even with a 50% spouses pension.

How much pension income will you expect your wife to have in respect of state pension and LGPS?

Ideally you want to make sure she uses up all of her personal tax-free allowance. After that the decision is really down to your wife's attitude to risk as to whether extra pension or S&S ISAs would be best.

hugo15

Thanks Jem16. Time to get the spreadsheet out I think.

She also has some contributions to the NHS pension scheme for which she is a deferred memeber. How do I find out what this is worth as we don't get a statement from them (should we get one?)?

jem16

hugo15 wrote: »

How do I find out what this is worth as we don't get a statement from them (should we get one?)?

No there is no requirement for Defined Benefit schemes to send out yearly statements. She will have had a statement when she left and each year it will have increased in line with inflation.

However contact them and they should be able to give you an up to date figure.

http://www.nhsbsa.nhs.uk/Pensions/2735.aspx

kidmugsy

hugo15 wrote: »

I currently make AVCs into my defined contribution scheme

I used to do that but found it better to contribute to a SIPP/personal pension/stakeholder instead: then you can (if you want) crystallise it without affecting the occupational pension.

hugo15

kidmugsy wrote: »

I used to do that but found it better to contribute to a SIPP/personal pension/stakeholder instead: then you can (if you want) crystallise it without affecting the occupational pension.

Would you be able to explain for me why it's better and what you mean by "crystallise it without affecting the occupational pension".

FatherAbraham

jem16 wrote: »

A non-taxpayer would normally be entitled to tax relief on £3600.

No, that's entirely wrong.

A non-earner would be entitled to tax relief on £3600.

A non-tax-payer is entitled to tax relief on entire earnings, or £3600, whichever is the greater.

In fact, paying income tax has nothing whatsoever to do with one's ability to claim basic-rate tax relief on pension contributions. It's earnings which count.

Warmest regards,
FA

jem16

FatherAbraham wrote: »

No, that's entirely wrong.

A non-earner would be entitled to tax relief on £3600.

A non-tax-payer is entitled to tax relief on entire earnings, or £3600, whichever is the greater.

In fact, paying income tax has nothing whatsoever to do with one's ability to claim basic-rate tax relief on pension contributions. It's earnings which count.

Warmest regards,
FA

Normally I would totally agree with you as it's what I've said on many occasions beforehand.

However HMRC seem to give a rather ambiguous answer to the same question.

http://www.hmrc.gov.uk/incometax/relief-pension.htm#2

It's a rather grey area I'm afraid.

xylophone

It's a rather grey area I'm afraid.

http://www.hmrc.gov.uk/pensionschemes/tax-basics.htm

Tax relief on contributions
There's no limit on the amount of contributions either a member or an employer can pay into their pension scheme.
Tax relief on member contributions is limited to 100 per cent of your earnings. If you earn less than £3,600 you can get tax relief on contributions up to that amount as long as the scheme uses the relief at source method for giving tax relief - more in the link below"



Also http://www.accountingweb.co.uk/anyanswers/tax-relief-personal-pension-contributions-low-earner

" Your client may invest up to the total of their earnings (before deduction of personal allowance) in a pension scheme but will pay this net of basic rate tax. In your example where the earnings are £6K, she can make pension contributions of up to £6K gross (£4,800 net) and HMT will add £1,200 to her pension pot and she will pay no tax.

Your client may make a net contribution of £2,880 and HMT will add £720, whether or not she has any earnings."

Incidentally the relief is given by extending the basic rate band rather than but ( by?) deducting the amount from earnings."

And see chart http://www.pruadviser.co.uk/content/support/technical_centre/tax_relief_members_contributions/

Earnings are taxable income- it is just that some taxable income is tax free. http://www.hmrc.gov.uk/incometax/taxable-income.htm

"Taxable income that you can receive tax-free
Almost everyone is entitled to receive a certain amount of taxable income tax-free during the tax year, this is called the Personal Allowance."