Pension planning for non-tax payers

ChasingtheWelshdream

Hi All,

I am trying to put on my big-girl pants and start thinking seriously about our pensions. I admit to having virtually no understanding of how pensions work, or how to start planning. So I'm hoping someone could point me in the right direction of where to start, where to seek advice etc!

About us:

Myself (36), hubby (45) and 3 children. We are both employed part-time and hubby is also self-employed part-time, selling his art.

We have no mortgage (house owned outright), loans or debt and receive child benefit and tax credits, which will stop within 10 years. Not much savings currently (due to buying house!)

We are both work for local government and are enrolled in the LGPS schemes (I have 10 years contributions, husband has 1).

Hubby pays voluntary NI contributions, mine are currently paid due to child benefit. After redundancy and relocation, our wages have only recently been enough to pay NI through salaries again, although we both had several years of full-time work previously. So we need to look at how any state pensions are forecast..

I'm thinking we need to do some retirement planning, but am clueless of where to start.

I am very happy in my part-time position, and don't intend to increase my hours until the children are beyond needing childcare. Hence, I will be a non-tax payer for the forsee-able.

Hubby works regular hours, but is technically on a relief contract so isn't guaranteed, and tops up with his art business. Again, due to ping-pong childcare, we are happy with this arrangement. He pays some tax each year via self-assessment, but not on his salary.

He intends to always paint/sell his art, so we will hopefully receive a small income from that, even in retirement (currently averaging £6-8k per year, but I suspect will get less as he gets older)


Pensions questions:

I have LGPS forecasts, but am clueless on what they mean. I have changed which council I work for, and assume I should transfer my previous LGPS to the new authority so everything is in one place, but the figures and benefits forecasts are double-dutch!

I am aware of tax-relief on pensions, but as we are non/low tax-payers, I am not sure how this relates to us.

I know I can make AVCs, but again I'm not sure if this is the right thing to do, or if I should get a private pension?

I am guessing we need to make some private pension provision, but if we don't get (much) tax-relief, what products should I be looking at?

Hubby has something from Prudential, which he thinks is when he opted out of SERPS in his first job years ago. We've had a letter saying it has approx £40k in it, but we don't really know what it is, and what we should do about it. (He can't really remember what it was for, and it looks like we don't contribute anything any more)

Should we just be looking at a LISA? (I understand that concept)

Do we do anything with this Prudential plan?

What kind of advisor do I ask for help? An accountant? A bank?

For info, we would like to aim for approx £12k p.a (in todays money), to retire. That is a small amount, but we think we will comfortable enough on that, bearing in mind our current expenditure vs income, with 3 children who will (hopefully!) have flown the nest by then.

Any help, explanation of guidance for a complete pension ostritch would be much appreciated!

Dazed_and_confused

For info, we would like to aim for approx £12k p.a (in todays money), to retire. That is a small amount, but we think we will comfortable enough on that, bearing in mind our current expenditure vs income, with 3 children who will (hopefully!) have flown the nest by then.

In view of the above you might want to check your current State Pension figure. A full "new" State Pension for each of you is worth a total of £17k (£8.5k each) so well above your aim and would leave all other pensions as a bonus or something which could possibly be used to fund early (or partial early) retirement before State Pension kicks in at 67/68.

Each of you can get your current entitlement immediately by looking at your Personal Tax Account on gov.uk. Ignore the first figure quoted (probably £164.35/week) and look at what you have actually earned to date and how many years you have left to make up the difference to the full £164.35.

If you pay into a personal pension or SIPP then you will get 20% added by the pension conpany. You should each be able to do this paying £2,880/year which becomes £3,600 in your pension fund with the basic rate tax relief added.

Depending on actual earnings and existing pension contributions you may be able to pay more than this if you want (can afford to!).

xylophone

Re state pension forecast

https://www.gov.uk/check-state-pension

assume I should transfer my previous LGPS to the new authority so everything is in one place,

Be very careful about this - has there not been a change relating to pension age according to the date when you joined the scheme? Check!

https://forums.moneysavingexpert.com/member.php?u=2533069 is expert on LGPS.

Hubby has something from Prudential, which he thinks is when he opted out of SERPS in his first job years ago.

Probably a former "protected rights" plan which is now just a Defined Contribution pension.

With regard to pension contributions and tax relief as a low (or non) earner, see

post 6 here

https://forums.moneysavingexpert.com/discussion/5885323/pension-contribution

If neither you nor your husband earn enough to pay tax then you are not receiving any tax relief on your LGPS contributions as it is a "net pay" arrangement - see post 2

https://forums.moneysavingexpert.com/discussion/5243730/lgps-low-earner-tax-question

http://www.thisismoney.co.uk/money/pensions/article-3990296/I-don-t-pay-tax-pension-tax-relief-Steve-Webb-replies.html

Your husband might wish to look into transferring the old plan into a more modern personal pension plan and continuing to contribute alongside his contributions to LGPS.

You could open a personal pension plan to run alongside your LGPS.

In terms of tax relief don't forget to factor in your contributions to LGPS when also contributing to another plan.

ChasingtheWelshdream

Dazed_and_confused wrote: »

For info, we would like to aim for approx £12k p.a (in todays money), to retire. That is a small amount, but we think we will comfortable enough on that, bearing in mind our current expenditure vs income, with 3 children who will (hopefully!) have flown the nest by then.

In view of the above you might want to check your current State Pension figure. A full "new" State Pension for each of you is worth a total of £17k (£8.5k each) so well above your aim and would leave all other pensions as a bonus or something which could possibly be used to fund early (or partial early) retirement before State Pension kicks in at 67/68.

Each of you can get your current entitlement immediately by looking at your Personal Tax Account on gov.uk. Ignore the first figure quoted (probably £164.35/week) and look at what you have actually earned to date and how many years you have left to make up the difference to the full £164.35.

If you pay into a personal pension or SIPP then you will get 20% added by the pension conpany. You should each be able to do this paying £2,880/year which becomes £3,600 in your pension fund with the basic rate tax relief added.

Depending on actual earnings and existing pension contributions you may be able to pay more than this if you want (can afford to!).

Thank you, I didn't realise I could look at that (told you I've been an ostritch ) I assumed the state pensions was far less than that. I do need to look at what happens when NI contributions are no longer paid due to child benefit, which I believe is when my youngest turns 12. Does the amount of NI you pay each month affect your pension, or just whether you pay it? I'm only just into the pay bracket to pay it now, will that count against me?

I'll go and have a look now.

kidmugsy

First off, what you need to think about is planning an income for retirement - that needn't necessarily involve pensions, except for the State Pension of course and LGPS pensions. So let's put those aside; all that need be said for the moment is that you must try to pay enough National Insurance Contributions to qualify for maximum new-style State Pension, and should be sure to remain as active members of LGPS. Somebody who knows a lot about LGPS will probably come along soon to elaborate.

Next you need to know that what a pension does for you is defer taxation. You avoid income tax on the way in but are exposed to tax on the way out. But there are three wrinkles.

(i) On the way in, each £1k you add (called a net contribution) will get another £250 added from the taxpayer. This is called a tax rebate, and you get it EVEN IF you didn't actually pay any income tax on that bit of earnings. So a 20% taxpayer has effectively avoided tax on part of his taxable earnings. (Because £250/£1250 = 20%.)

Someone who pays no income tax on his earnings effectively just receives free money from the taxpayer. Yippee! (Presumably successive governments have thought it a good idea to subsidise the pension contributions of low earners in this way.)

(ii) On the way out, 25% is not taxed at all: the famous "tax-free lump sum" or "Pension Commencement Lump Sum". Yippee!

(iii) The other 75% that you will want to take out will be taxed as income. But only if your annual income adds up to be more than the Personal Allowance. So for many people they will find that if, say, Personal Allowance is £12,500 and their State Pension is £8,500, then the first £4k of their taxable drawdown from their pension will be taxed at 0%. Yippee again.

Wrinkle (iii) shows why pension contributions can be wonderful for low earners if only they can scrape up the money to do it. It also shows why your husband's pension at the Pru should be excellent - by drawing the money out slowly over several years he'll probably be able to get it all out without paying tax on it.

There's a lot more to say but I'll leave you to absorb that bit to start with.

There's one more thing that applies now. You are not a taxpayer. Your husband is. So you should transfer part of your present Personal Allowance to him so that he pays less income tax, by up to £238 per annum. Better than a slap on the face with a wet fish!
https://www.gov.uk/marriage-allowance

ChasingtheWelshdream

Dazed_and_confused wrote: »

[

If you pay into a personal pension or SIPP then you will get 20% added by the pension conpany. You should each be able to do this paying £2,880/year which becomes £3,600 in your pension fund with the basic rate tax relief added.

Depending on actual earnings and existing pension contributions you may be able to pay more than this if you want (can afford to!).

This is what I wondered. So a personal pension is called a SIPP? How does this differ to LISA, which I understood to also work the same way?

On my contracted hours, (I was irregular 0 hours until recently), I take home just over £10k. Hubby is about £7-8k

ChasingtheWelshdream

Oops, I started to reply then cross-posted, so I'll digest answers and be back in a second - thanks all for taking the time!:j

Dazed_and_confused

Personal pension and SIPP are similar for tax relief purposes but with a SIPP you have to make all the investment decisions. Some people are more comfortable than others doing this.

You don't have to invest, there are plenty of older posters on here who start a pension really just for the 20% tax relief and keep the funds in cash with no risk of loss of capital. But there is obviously inflation so there is a loss of value from inflation whilst cash is held.

ChasingtheWelshdream

xylophone wrote: »

Re state pension forecast

https://www.gov.uk/check-state-pension

Thank you. :-)



Be very careful about this - has there not been a change relating to pension age according to the date when you joined the scheme? Check!

https://forums.moneysavingexpert.com/member.php?u=2533069 is expert on LGPS.



Probably a former "protected rights" plan which is now just a Defined Contribution pension.

Oh no! I just thought to keep everything together! I know it hasn't been transferred yet as the previous authority are dragging their heels. I joined the pension in 2009 (I thought I had 10 years, just realised only 8 as I opted out for the first couple of years. I was only working 4 hours on Saturday at the time so it didn't seem worth it).

Since then my wages varied from part-time to full-time and back again.

I remember some information about us having paid reduced NI contributions due the LGPS, which could affect our state pension, but none of us really understood it.

Is there a section on my statements I should look for?

With regard to pension contributions and tax relief as a low (or non) earner, see

post 6 here

https://forums.moneysavingexpert.com/discussion/5885323/pension-contribution

If neither you nor your husband earn enough to pay tax then you are not receiving any tax relief on your LGPS contributions as it is a "net pay" arrangement - see post 2

https://forums.moneysavingexpert.com/discussion/5243730/lgps-low-earner-tax-question

http://www.thisismoney.co.uk/money/pensions/article-3990296/I-don-t-pay-tax-pension-tax-relief-Steve-Webb-replies.html

Thank you, that's what I thought. I did ask a pension assistant at my work, but they just said LGPS is good because you get tax relief. But I couldn't see that would apply to me.

Your husband might wish to look into transferring the old plan into a more modern personal pension plan and continuing to contribute alongside his contributions to LGPS.

So he could transfer this Prudential into a SIPP?

You could open a personal pension plan to run alongside your LGPS.

In terms of tax relief don't forget to factor in your contributions to LGPS when also contributing to another plan.

Ah, so adding the contributions from my payslip, to whatever other contributions we make to a potential SIPP, so it doesn't go over £2880 (which is probably not doable at the moment, but something to be mindful of)

ChasingtheWelshdream

Dazed_and_confused wrote: »

Personal pension and SIPP are similar for tax relief purposes but with a SIPP you have to make all the investment decisions. Some people are more comfortable than others doing this.

You don't have to invest, there are plenty of older posters on here who start a pension really just for the 20% tax relief and keep the funds in cash with no risk of loss of capital. But there is obviously inflation so there is a loss of value from inflation whilst cash is held.

Ahh, that makes sense! Thanks!

xylophone

So a personal pension is called a SIPP?

No, a SIPP is a type of personal pension.

https://www.moneyadviceservice.org.uk/en/articles/self-invested-personal-pensions

https://www.moneysavingexpert.com/savings/lifetime-ISAs/