Cheapest easiest way for a non-earner to put 2880 into a pension for a few years?

michaels

I understand that a non-earner can put up to 2880 annually into a pension and benefit from 'tax relief' of 20%.

Given the small sum, what is the cheapest and easiest way of doing this, probably into something like a ftse tracker?

Once the person reaches 55 with a small pot and is still earning less than the tax threshold, presuambly they can take out as much as they want and will pay no tax unless their total income including drawdown exceeds 10,600? What are the options to 'rinse and repeat', could this be repeated every year?

Thanks

jamesd

Virgin is one of the cheapest. The fund charge for their FTSE tracker is I think 1% which isn't particularly cheap but they don't have any other charges, including not when taking out a lump sum, so the overall package is good for your purpose.

Yes, at 55 a person can do that. However, income tax will be deducted by the pension firm and will have to be reclaimed from HMRC by filling out a form. No tax is actually due, it's just the way the system works, with the pension company compelled to use the emergency tax code.

beanie414

My wife is going to do this as she is a non earner. I thought it was Cavendish that was meant to be the best one. Is that wrong?

atush

I would look at Cavendish.

As a side note, I owuld not put everything into a ftse tracker- too risky as it is just one country/index. If you want one fund and not more, i'd go with either a global tracker or a vanguard lifestyle fund

xylophone

Hargreaves Lansdown SIPP?

Fidelity SIPP?

http://www.ftadviser.com/2015/03/23/ifa-industry/companies-and-people/another-provider-unveils-post-april-pricing-ANAJUYHMqJQJydqxvKaxEJ/article.html

dunstonh

To be honest, a stakeholder pension may be best and cheapest given the small amounts. At least until you get to 20k plus.

jamesd

beanie414 wrote: »

My wife is going to do this as she is a non earner. I thought it was Cavendish that was meant to be the best one. Is that wrong?

Cavendish is not necessarily the best. The charges for putting money in and taking it out a week or year later as planned here at Virgin are zero. What are they from the Cavendish offering?

The Cavendish offering is fine longer term but not necessarily for what is planned here.

xylophone wrote: »

Hargreaves Lansdown SIPP?

"£295 plus VAT if taken within 12 months".

xylophone wrote: »

Fidelity SIPP?

What are the charges for putting money in and taking it out less than a year later, repeating every year?

Need to remember what is being planned here and pick the right product for that intended use. The real zero charges for the Virgin product make it very suitable. Not the only possible suitable one, but the products that are good long term or for larger amounts aren't necessarily the right ones for this use.

xylophone

"£295 plus VAT if taken within 12 months".

If closed within 12 months - and the OP envisaged making the contributions for "a few years".


Early account closure fee:
This fee applies instead of the standard account closure fee when funds are paid to you as income and the SIPP account has been open for less than 12 months.

*A drawdown account closure fee applies instead of the standard account closure fee (£25 + VAT) when funds are withdrawn and the drawdown account has been open for less than 12 months

jamesd

There are two parts, the before age 55 part and the after age 55 part. The after age part is to rinse and repeat paying in 2880 and taking out 3600. That can be done within days of putting in the money.

No problem with the £295 charge for the pre-55 part but it may well be an issue for the rinse and repeat. Though it can be dodged by ensuring that the pot value never drops below the £1,000 at which HL will close the account and pay out the money whether you ask them to or not.

With the low amounts involved here the big issue is fixed fees of all sorts, not really fund charges.

ab56

Query, slightly related to this please. I have retired early (over 55 years old), so no earned income but have investment income amounting to more than the current personal allowance; therefore receive a tax repayment on the tax deducted up to the personal allowance.


If in a tax year I were to invest £2880 in a personal pension as described above, HMRC contributing £720 = £3600; and then withdraw total out, presumably I would be taxed on amount withdrawn. Hence no benefit (tax-wise)?


Thanking you in advance.

jamesd

25% of the money taken out is the pension commencement lump sum which is free of income tax. So your benefit is 25% of the tax relief added, less costs.