SIPPs advantages for non-tax payers?

merlin777

I'm looking for clarification on the advantages of a SIPP for non tax payers.

I am disabled and unemployed. My taxable income from state benefits is around (slightly above) the lower rate tax threshold. The majority of my income is from an income protection policy and is therefore untaxable but would be sufficient to allow some savings.

Currently I am putting some money into a savings and investment ISA but I'm trying to work out if the SIPP offers an advantage.

I guess my specific question is this: the government top up contributions to a SIPP which effectively are giving back the tax you paid on those contributions when you earned it. So if your income was untaxed, like mine, do the government still top them up and is that essentially 'free money' as I didn't pay tax on it?

TIA for any advice or opinions.
j

atush

The question should be if Pensions can be good for non taxpayers, and they can. Esp if you expect your income in retirement to be below the PA threshold as you are now. you can put in up to 2880 pr year, and that money is grossed up to 3600 by tax relief.

So when you come to take out the money, 25% is tax free. The rest can be drawn down using any left over PA and then you dont pay tax on it? the 25% can be put into ISAs to keep it untaxed.

Sipps are a type of pension and may or may not be the right kind for you?

jamesd

You can pay £2880 a year into a pension net and basic rate tax relief will be added to give you £3600 in the pension pot. You can then take out 25% as a tax free lump sum and the remaining 75% taxed at your normal tax rate, which seems to be 20%. So you put in 2880 and get out 3060 after tax. Repeat each year and enjoy the 6.25% increase in the value of your money each time you do it, an extra £180 a year for you.

Yo do need to make sure that you're paying into a pension place that hs no charges for doing this. Some have charges that are so high that it would lose you money, others let you do it for nothing.

This applies even if you have no taxable income.

You need to be 55 years old before you can start to take money out of a pension.