SIPP = pre-tax or rebate?

Dird

The article on SIPP doesn't actually mention how it's set up (and I've never had a DC pension before). Do you give your employer the details & they handle the monthly payments from gross salary or you set up a Direct Debit & have to reclaim it every year?

I've recently set up a S&S ISA monthly plan but was wondering if I'd be better off splitting it between ISA & SIPP assuming I don't have to file with the taxman.

Current pension situation = just under 2 years in DB scheme

coyrls

Typically an employer would not contribute to your SIPP. You make the contributions net (i.e. after tax), the SIPP administrators claim basic rate tax back and add it to your contribution. If you are in a higher tax band than basic rate, you claim the remainder of the tax back from HMRC, typically by filling in a tax form.

Dird

so I'd see the extra 20% added? I guess they do it annually rather than for each contribution? Do they claim NI contributions also?

Employers don't contribute to anything beyond the basic pension (presumably it's the government doing this)

edinburgher

• Your SIPP provider will claim the extra 20% from the government and apply it to your account. I'm told that some of the larger providers pay it instantly, my provider takes 8-12 weeks
• It's reclaimed for each contribution, not annually
• Why would you expect a NI refund?

dunstonh

Do you give your employer the details & they handle the monthly payments from gross salary or you set up a Direct Debit & have to reclaim it every year?

Has the employer agreed to pay into your pension?
Individual pensions do not meet auto-enrolment criteria. So, you would have to opt out (if this is place of the workplace scheme)

The employer would have to sign the application or an employer payer form. They would need to complete a direct debit mandate too. Employer contributions do not get tax relief for you.

Dird

My reasoning was that if it was a company provided scheme then you'd pay pre-NI so NI would be lower as well as income tax?

My employers won't contribute to anything (AVC/SIPP) besides the DC pension; would they still need to sign off a SIPP they don't contribute to? If so, why? :f

dunstonh

My employers won't contribute to anything (AVC/SIPP) besides the DC pension; would they still need to sign off a SIPP they don't contribute to? If so, why? :f

if there is no employer contribution then they are not involved in anyway. It is only when you want contributions via payroll that they need to be involved.

jamesd

How contributions to defined contribution schemes work varies depending on the specific scheme. Here are three of the ways they can work:

1. Salary sacrifice. This is the best. You agree with your employer to a reduction in your contracted pay and they pay the reduction into a pension for you. This saves both employee and employer NI. Income tax relief is automatically provided because the money is going into the pension gross (though if you have income from multiple jobs or savings income you might not get the full relief you're entitled to). Employers often share some of the saved employer NI. Anyone below the income tax threshold will not get all the tax relief for this so caution is needed and they might be better off in some other type of scheme so they do get tax relief.

2. Deduction from gross pay. Here the money is run through payroll but deducted from gross pay and you may still pay NI. Because it's deducted from gross pay there is typically no income tax claiming necessary.

3. Deduction from net pay. 25% will be added by the pension scheme to give the 20% basic rate income tax relief and any more must be claimed from HMRC. you can do that during the tax year and even give them an estimate of your gross (including the 25%) for the year and they will adjust your tax code to give you the relief during the year.

Employers don't need to know or consent to you having as many pensions as you like outside any work pension. Twenty years ago there were rules limiting you to one employer pension most of the time but those are long gone.

Dird

Am I right in thinking a SIPP without employer contributions and a S&S ISA are basically the same except for inheritence tax purposes?
SIPP: Pay NI but not tax at point of investment. Pay NI & tax on retirement draw down
ISA: Pay NI & tax at the start. Pay no NI or tax on retirement draw down

jamesd

Assuming basic rate income tax the pension will be worth 6.25% more because of the tax free lump sum. But some of the pension may be taken within the income tax personal allowance meaning no income tax on that part of it, a bigger gain over the ISA. Lifetime ISA changes the calculations quite a bit.

Also pensions are exempt from benefits means tests and bankruptcy at least until they can be taken. ISAs aren't. So it's much easier for a bad life event to lose you all of your non-pension money.

Dird

OK thanks for the info, lifetime ISA looks nice :-o