SIPP contributions when not working

EachPenny

I'm looking at starting a SIPP before the end of the financial year, primarily for the tax relief benefit, but also as a small additional investment over the next 10 years or so.

I'm not currently working (and no paid employment in 2017/18) so I understand I'm limited to contributing £2,880/£3,600 this year.

However, something I read on the HL website has just made me wonder whether my understanding is correct.

I'm a member of a defined benefit (final salary) pension
The benefits you are building up each year are assigned a monetary value.
This value counts towards the annual allowance and could therefore restrict what you can contribute to another pension. You need to contact your pension administrator and ask for this value. http://www.hl.co.uk/pensions/sipp/how-much-can-i-invest

I think that is saying if you are an active member making contributions then the benefits building up (i.e. the accrual) are taken into account, but not the increase in future benefits as a result of index linking.

I am a member of LGPS, but as I'm not working I won't be making any contributions into the scheme this financial year. Therefore I'd say I was not 'building up benefits' this year - but just wanted a second opinion to make sure I'm not about to make a big mistake.

Also, is it really as easy as opening a SIPP, paying in £2,880, and the government will pay in the rest automatically? No other applications or forms required?

Many thanks in advance for any advice.

zagfles

EachPenny wrote: »

I'm looking at starting a SIPP before the end of the financial year, primarily for the tax relief benefit, but also as a small additional investment over the next 10 years or so.

I'm not currently working (and no paid employment in 2017/18) so I understand I'm limited to contributing £2,880/£3,600 this year.

However, something I read on the HL website has just made me wonder whether my understanding is correct.

I think that is saying if you are an active member making contributions then the benefits building up (i.e. the accrual) are taken into account, but not the increase in future benefits as a result of index linking.

I am a member of LGPS, but as I'm not working I won't be making any contributions into the scheme this financial year. Therefore I'd say I was not 'building up benefits' this year - but just wanted a second opinion to make sure I'm not about to make a big mistake.

Don't worry about it. For a start is concerns the annual allowance, which isn't an issue for you. Secondly, it's very rare that an non-actively contributed to DB scheme would affect the AA.

But the AA isn't the issue, it's the tax relief limit (this is a separate limit, nothing to do with the AA, as I keep on banging on about here). Your limit will be the £2880 net as you say.

Also, is it really as easy as opening a SIPP, paying in £2,880, and the government will pay in the rest automatically? No other applications or forms required?

Many thanks in advance for any advice.

Yes, they'll need your NI number and possibly money laundering related checks but should be simple to do.

Just bear in mind 75% of the money is taxable on the way out, it's more "tax deferment" than tax relief.

bioboybill

25% of the money is tax free on the way out, and although the rest is taxable it won't incur tax if it's within your personal tax allowance of £11,500 this year and £11,850 from April 6th.

EachPenny

zagfles wrote: »

Just bear in mind 75% of the money is taxable on the way out, it's more "tax deferment" than tax relief.

bioboybill wrote: »

25% of the money is tax free on the way out, and although the rest is taxable it won't incur tax if it's within your personal tax allowance of £11,500 this year and £11,850 from April 6th.

Thank you. It is unlikely I'm going to build up more than about £20k (assuming things stay as they are) so on the way out it may only be a couple of year's worth of personal allowances.

My plan at the moment is to go with HL and something boring like VLS60 - I'm not looking to do much more than protect a lump of money against inflation and accept the government's generosity. However, because I won't need to access the money at any particular point in time and I'd be willing to ride out any long-term falls, I might be tempted to go for something more interesting when I've got a better understanding of how it all works.

From what I can see there is no technical/practical reason why you can't leave some of the money in the SIPP as cash ready to invest at a later date. Is it right that the only pitfall of this is losing out on the potential for growth in the meantime? So I could put £2,880 cash in today but then not actually do anything with it until say June?

Audaxer

EachPenny wrote: »

From what I can see there is no technical/practical reason why you can't leave some of the money in the SIPP as cash ready to invest at a later date. Is it right that the only pitfall of this is losing out on the potential for growth in the meantime? So I could put £2,880 cash in today but then not actually do anything with it until say June?

Yes, you can leave it as cash. A few months later you will get the tax credit of £720 so you will have £3,600 in cash. If your taxable income this year is well under the Personal Tax Allowance rate you could actually withdraw most of the cash as a UFPLS lump sum this tax year, 75% of which will be taxed, but if you have enough left in your Personal Tax Allowance, you should be able to claim the tax back from HMRC.

It may be with HL that you have to keep a minimum balance of £1,000 in your SIPP, although someone recently advised that you could take the balance down to £100, thereby withdrawing £3,500, but you would have to check that with HL.

EachPenny

Audaxer wrote: »

If your taxable income this year is well under the Personal Tax Allowance rate you could actually withdraw most of the cash as a UFPLS lump sum this tax year, 75% of which will be taxed, but if you have enough left in your Personal Tax Allowance, you should be able to claim the tax back from HMRC.

Thanks Audaxer. That would only be applicable to people over 55 though?

bioboybill

EachPenny wrote: »

Thanks Audaxer. That would only be applicable to people over 55 though?

Yes. You can't take money out of a SIPP under 55.

Audaxer

EachPenny wrote: »

Thanks Audaxer. That would only be applicable to people over 55 though?

Sorry, I was assuming you were over 55 as I am retired and have just opened a SIPP paying in the maximum £2,880 as well.

Don't_Know_Joe

"Also, is it really as easy as opening a SIPP, paying in £2,880, and the government will pay in the rest automatically? No other applications or forms required?"

I haven't been employed, and am not likely to be, for the remainder of this tax year. I am not retirement age. Nor have I contributed to another pension this tax year. I opened a SIPP with HL this tax year. I put in the allowable £2,880. And soon after, HL claimed the tax relief of £720 on my behalf and it appeared in my HL account as cash, which I later invested as part of the SIPP.

EachPenny

Audaxer wrote: »

Sorry, I was assuming you were over 55 as I am retired and have just opened a SIPP paying in the maximum £2,880 as well.

No problem I have a few years to go, but not so many that the amount will be life-changing at age 55. I've just had a look at some of the threads you started on the subject of SIPPs... it has saved me asking some more questions, so many thanks for that.

EachPenny

Don't_Know_Joe wrote: »

I haven't been employed, and am not likely to be, for the remainder of this tax year. I am not retirement age. Nor have I contributed to another pension this tax year. I opened a SIPP with HL this tax year. I put in the allowable £2,880. And soon after, HL claimed the tax relief of £720 on my behalf and it appeared in my HL account as cash, which I later invested as part of the SIPP.

Many thanks for the confirmation, it does seem a very easy way to 'earn' £720!