Paying £2880 into pension when retired 3 January 2017 at 8:39AM edited 3 January 2017 at 10:14AM in Pensions, Annuities & Retirement Planning 1.1K replies 240.9K views

xylophone

This means future contributions to all money purchase pensions will be limited to an annual allowance of £4000"

The "MPAA" - once income has been taken from a DC pension, future contributions to a DC pension are limited to £4000 per annum.

But your wife has no relevant earnings and is restricted to £3600 per annum anyway.

The MPAA is not relevant to her circumstances.

https://www.aegon.co.uk/support/faq/pension-technical/MPAA.html

kangoora

I have retired early a year ago and currently get a DB pension of about £5.6k p.a (this tax year around £4.7k). I also have some small part-time earnings from Ebay of an estimated £2k p.a based upon an April start this year.

It was always my intention to withdraw up to my personal allowance in March from my DC pension pot, when I will know reasonably exactly what the final total is of Ebay earnings so I can get this amount correct.

I have not taken anything from my DC pension pot yet and, apart from drawing up to my annual allowance, don't see any need to take any more money out of it at this time.

So,
1. Given the above, can I still contribute £2880 into my existing DC pension (for ease) and yet still withdraw from that pension up to my personal allowance? This would be in the region of £4.8k.
2. Reason I ask this is everyone on this thread seems to set up an small independent SIPP to do this and only for £2880. Is there any particular reason not to use an existing DC pension?
3. Do my ebay earnings allow me to contribute any extra? I presume not, as I will still be a non-taxpayer.

Additional info:

In 4 1/2 years time my DB pensions will increase to circa £12k p.a. so my annual allowance will be completely used up (ish).

xylophone

I will still be a non-taxpayer.

A person could be in a situation where his only income was relevant earnings of £11,500 - he would not be paying tax but he could still contribute £9200 to a personal pension and receive tax relief of £2,300.

A person with no relevant earnings ( or relevant earnings under £3,600) can contribute £2880 to a personal pension and receive tax relief of £720.

http://www.pruadviser.co.uk/content/knowledge/technical-centre/tax_relief_members_contributions/

Linton

kangoora wrote: »

So,
1. Given the above, can I still contribute £2880 into my existing DC pension (for ease) and yet still withdraw from that pension up to my personal allowance? This would be in the region of £4.8k.
2. Reason I ask this is everyone on this thread seems to set up an small independent SIPP to do this and only for £2880. Is there any particular reason not to use an existing DC pension?
3. Do my ebay earnings allow me to contribute any extra? I presume not, as I will still be a non-taxpayer.

Additional info:

In 4 1/2 years time my DB pensions will increase to circa £12k p.a. so my annual allowance will be completely used up (ish).

1) Yes you can contribute £2880 into an existing DC pension unless the rules of the scheme stop you (eg an ex-employers scheme)
2) I guess most people asking about the option on this Board are not experienced investors and dont already have a SIPP/personal pension.
3) [STRIKE]Ebay trading profits are capital gains rather than earned income so dont help with the pension linits. [/STRIKE] I guess you could set up an ebay trading company and pay yourself a director's pension. Perhaps not worth the effort for £2K.

Dazed_and_confused

As the eBay income is only likely to be 2k it won't make any difference* but surely "trading" income/profits are earnings/self employed income for both income tax and pension contribution purposes.

How do you arrive at this being a capital gain?

*would be different if it took you over £3600 in earnings for pension contribution purposes

Linton

Dazed_and_confused wrote: »

As the eBay income is only likely to be 2k it won't make any difference* but surely "trading" income/profits are earnings/self employed income for both income tax and pension contribution purposes.

How do you arrive at this being a capital gain?

*would be different if it took you over £3600 in earnings for pension contribution purposes

mmm interesting point. Having checked this through I think you are right. So the OP would need to register as self employed with HMRC. Given sufficient income NI would also be due.

But as you say, with only £2K income it doesnt make any difference for pension contributions.

kangoora

Thanks very much for replies

roggie_2

Just spent hours reading these posts - very interesting and thanks for all the advice. One pension scheme not mentioned here is Nest. Many people will now have a Nest plan, is it worth putting monies into one of these rather than opening a HL (or equivalent) fund?

Mnd

The only problem I can see with nest is that you can only take all the fund out in one go at this sort of level. My auto enrolment pension was/is with nest but I have opened a hl to pay in the extra this year and to start the 2880 next year and will take my nest money as part of my tax management

Alexland

Also NEST have a high initial charge for new contributions counterbalanced by a very low ongoing charge. As such if you are planning to withdraw in the next few years the overall average charges paid across the short time invested may be uncompetitive.