Your mum paying into your pension?

Wickers_2

Hi,
If a persons parent wants to gift their son by paying a lump sum into his personal pension would that amount be limited to no more than her son's earnings?

Thanks

MallyGirl

The total going into his pension(s) would be limited to his earnings, including employer contributions, and capped at £40k.
I think you can actually put more in but it would not qualify for any tax relief so there might be a chunk of tax to pay back which would be messy - not so confident on this bit

Wickers_2

Thanks MallyGirl,

His income is about £20,000 and on tax credits. So assuming his mum made a gift payment into his pension of £15,000 would this affect his tax credits?

System

MallyGirl wrote: »

The total going into his pension(s) would be limited to his earnings, including employer contributions, and capped at £40k.

The earnings cap and the allowance cap are different things.

Employer contributions are not limited to income, but both are limited in total by the contributions cap.

Wickers_2

Thanks Clifford_Pope,
Regarding 'employer contributions' he is self employed.so I take it the most that can be paid into his pension is up to his earnings of £20,000 (gross) ?

xylophone

Regarding 'employer contributions' he is self employed.so I take it the most that can be paid into his pension is up to his earnings of £20,000 (gross) ?

Tax relievable pension contributions and relevant earnings covered in post 10

https://forums.moneysavingexpert.com/discussion/5803504

Re other person paying into scheme see

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm041000

Re post 2 above, http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/pension-contributions-the-basics/

Individuals can contribute to any number of pension plans.

Personal contributions made by an individual are unlimited. However there is a limit on the amount of gross contributions that an individual can pay each year and benefit fully from tax relief.

Tax relief is restricted to the higher of £3,600 or 100% of relevant UK earnings - subject to the annual allowance.


His tax credits will not be affected by another person making contributions to his pension scheme.

Were he himself making such contributions it could be that his pension credits would increase.

https://www.gov.uk/workplace-pensions/what-you-your-employer-and-the-government-pay

If a person has relevant earnings of £20,000 per annum, he could pay up to £16,000 in a personal pension plan and receive tax relief of up to £4000.

Wickers_2

Thanks for all that info xylophone. Very useful, I'll pass it on.

I have just read that a persons pension will be taken into account for universal credits when they reach 55. If I've read it correctly the government will assume what an annuity will make and deduct that sum from the universal credits, so, if a £40,000 pension makes an annuity of £2,000/year then that amount will be deducted from the universal credits payment.

WillowCat

Wickers wrote: »

Thanks for all that info xylophone. Very useful, I'll pass it on.

I have just read that a persons pension will be taken into account for universal credits when they reach 55. If I've read it correctly the government will assume what an annuity will make and deduct that sum from the universal credits, so, if a £40,000 pension makes an annuity of £2,000/year then that amount will be deducted from the universal credits payment.

Completely wrong.

Only if you take the pension at 55 will it be taken into consideration, and even then if taken as a series of random capital amounts in drawdown, provided these are less than the £6k savings limit (including existing savings) then they will have no effect.

The full rules are explained here:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

Wickers_2

Thanks WillowCat,

That'll will be good news for my friend.

There's always that fear the rules can change in future and whether or not to put into a pension when you can?

zagfles

Wickers wrote: »

Thanks MallyGirl,

His income is about £20,000 and on tax credits. So assuming his mum made a gift payment into his pension of £15,000 would this affect his tax credits?

If you make pension contributions they reduce your income for tax credits, and so likely increase your tax credits award. Not sure what would happen if someone else put money into your pension.

Why not make things simple, get your Mum to gift you the money. Live off that money. Put your earnings into your own pension. Same end result, no complications about who paid into your pension.

Wickers_2

"Why not make things simple, get your Mum to gift you the money. Live off that money. Put your earnings into your own pension. Same end result, no complications about who paid into your pension".

If my friends mum gifted him the money it would require everything to be paid by cash. Any gift paid into his account would reduce his tax credits. Thanks for the idea but not sure it would "make things simple"