Non-Taxpayer - Should I pay into a Nest Pension?

Kaizen57912

I have just been offered a new part-time job in a company with less than 5 employees. They offer the Nest Pension Scheme but say I am not entitled to it as I earn under £10k per year. I have read that I can actually ask to join it.

I really don't understand pensions and my question is, if I can pay in, should I? I am a non-taxpayer at the moment but have a pension pot that I will probably have to pay tax on when I eventually get it. Would I be better just putting my money into an ISA? I am 50

jamesd

Will the work pension scheme do any matching of your pension contributions if you choose to join it?

Does the work pension scheme use salary sacrifice?

If the answer to the first question is yes you should join it and try to get the maximum available employer contributions. Beyond that, only pay in more if it is not using salary sacrifice.

It the answer to the second question is yes you should only join it if there is a matching employer contribution. This is because at your income level a salary sacrifice pension scheme will pay you no pension tax relief but contributions to other types of pension not using salary sacrifice will give you tax relief.

Once you reach age 55 it is possible to take money out of many pension schemes. The tax relief on the way in combined with a low income meaning taking out is tax free up to some level makes it desirable top pay into pensions then take money out of pensions as a way to get the highest amount of money to you per Pounds spent. An ISA can't beat the combination of paying in to a pension then taking the money out tax free.

I've assumed that you have plenty of income for your day to day needs. Is that true? Are you on any means tested benefits? Roughly how many hours do you work each week? Any children or spouse in the household. These questions are in part to determine whether tax credits might be available to you and increased by pension contributions.

Kaizen57912

Hi James, Thanks for taking time to reply.

I need to find out from my employer regarding their contribution. I read on line that the Nest Pension is a non-salary sacrifice scheme.

I work 15 hours per week over 5 days. My annual is around 9k

I am married. My husband is the same age as me and his income in around 19k p.a. so our income is quite low. However so are our outgoings and we have no debt as the mortgage is paid off. We do have young children (7&8) hence my working part time. I get tax credits but it's not much. We have some savings in ISA's. My husband's pension isn't great It's projecting 10k p.a but it is a local gov't pension scheme which I believe are very good.

zagfles

It would likely be worth you joining the scheme if you can afford it since your income for the purposes of tax credits would reduce, usually giving you more tax credits (though there are disregards for income increases and reductions in tax credits which can complicate things).

If it's sal sac then you'd also save a bit of NI.

jamesd

Best to use a tax credit checker with numbers before and after pension contributions to see the effect. In general for benefits calculations pension contributions reduce income so you'd end up with an extra large subsidy for your pension contributions.

How old is your husband? I'm wondering mainly how close to age 55 to get some idea of whether he'll soon be able to take out pension money and do the flipping in and out thing with pension contributions in his name. You're already close enough that in a way a pension contribution by you can be regarded a bit like a five year savings scheme with nice tax bonus on top. As well as its pension role, of course. You can use some for each purpose if you want to and can afford it.

xylophone

How old is your husband? I'm wondering mainly how close to age 55 to get some idea of whether he'll soon be able to take out pension money and do the flipping in and out thing with pension contributions in his name.

OP's husband is a member of LGPS, a defined benefit pension scheme.

xylophone

OP, see https://www.nestpensions.org.uk/schemeweb/NestWeb/public/pensions/contents/auto-enrolment.html

You earn over £5824 but less than £10,000 - it would appear therefore that while you need not be automatically enrolled, you can ask to be enrolled and are entitled to employer contributions.

https://www.nestpensions.org.uk/schemeweb/NestWeb/public/helpcentre/contents/how-should-i-calculate-tax-relief-with-my-earnings-basis.html

It appears that NEST use relief at source therefore you should receive tax relief even though you are a non taxpayer.

https://www.gov.uk/workplace-pensions/managing-your-pension

https://www.nestpensions.org.uk/schemeweb/NestWeb/public/helpcentre/contents/how-will-i-know-which-workers-are-eligible-for-tax-relief.html

jamesd

xylophone wrote: »

OP's husband is a member of LGPS, a defined benefit pension scheme.

Which says nothing about whether he can benefit by paying into a personal pension as well. With a couple of hundred Pounds a year of free money available just from paying in and taking out the money again a few weeks later at basic rate income tax for those aged between 55 and 75 it's worth checking. Better still in this case it would reduce household income and further increase the tax credit potential.