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SIPP for low earner
Comments
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From what I understand you are saying, the increase in DB benefits (the 1/49 of salary, indexed, then multiplied by 16) only applies to the £40K limit and is not used to work out the actual amount (deemed contributions) that can be input into pension(s) in one year?
Yes it applies only to Annual Allowance limits and does not apply to tax relief limits.
Your wife is nowhere near the Annual allowance limit so she can safely ignore the increase in value calculation.0 -
Jem16, I was told by a potential SIPP provider:
"In any tax year you can contribute up to 100% of your 'Relevant UK Earnings' (RUKES), effectively capped by the annual allowance of £40,000. This includes the Governments contribution.
It is possible to obtain tax relief on a pension contribution even if you have not paid tax in the first instance, if your income is less than your personal allowance. For example, someone with earnings of £10,000 would be able to make a net contribution of £8,000 which would be grossed up to £10,000 by the Government.
Please remember to include any personal pension contributions you have already made in this tax year when calculating how much you can contribute. With regards to your Local Government scheme, you should contact your pension administrator to establish the level of 'deemed contributions' made, as this will not necessarily be the amount deducted from your salary. Total personal contributions cannot exceed your RUKES. Employer contributions are not restricted by your RUKES, but do count towards the overriding annual allowance of £40,000"
From what I understand you are saying, the increase in DB benefits (the 1/49 of salary, indexed, then multiplied by 16) only applies to the £40K limit and is not used to work out the actual amount (deemed contributions) that can be input into pension(s) in one year?
The rest looks good and the important bit is "Total personal contributions cannot exceed your RUKES. Employer contributions are not restricted by your RUKES, but do count towards the overriding annual allowance of £40,000"
Someone who earns £11k in a 1/49th CARE scheme would use up about £3-4k of the AA in the DB scheme, even if they also put £10k gross (£8k net) into a SIPP they are using under £15k of the £40k AA.0 -
Yes it applies only to Annual Allowance limits and does not apply to tax relief limits.
Your wife is nowhere near the Annual allowance limit so she can safely ignore the increase in value calculation.
Ok, that is a relief! :rotfl:
So it a simple (100%-5.5% contribution) x Salary calculation for the grossed-up amount.0 -
OK Thanks. So just to be clear. My wife earns £2000 and pays 5.5% contribution = £110. I can open a SIPP and pay in £3600-£110=£3490 gross. I then pay in 80%=£2792 and the taxman adds 20%=£698.
I can't imagine a good pension from a £110 yearly contribution although I can see you'll get more than you paid in back. The other thing that I found interesting while sorting out my wife's pension is that because we had two children 10 years apart she earned 22 years contributions for looking after them.0 -
I can't imagine a good pension from a £110 yearly contribution although I can see you'll get more than you paid in back.
That's the main thing. However the most important thing is that the £110 contribution with the LGPS will give a pension far in excess of a £110 contribution to a SIPP.0
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