Pension planning for non-tax payers

ChasingtheWelshdream

OK, so I think my post was too long and MSE wouldn't let me post it, so I'll do it in two parts.

kidmugsy wrote: »

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.

Does it matter the monetary amount paid to NIs? If I earn less/pay less than someone full-time, does that count against me? Or is it just a 'stamp' that is credited regardless of whether you earn £10k or £50k

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.)

Ah, makes sense now. But, I understand not in the LGPS as it's 'net pay', and so to get this we would be better to contribute to an SIPP?

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

Yep, I get that. So in our case, a lump sum could also be used wisely as an income (eg, earning interest in a bank account, with us allocating an annual amount we would withdraw to use

xylophone

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

https://www.litrg.org.uk/tax-guides/employed/what-national-insurance-do-i-pay-employee

As a non tax payer, you do not receive tax relief on your LGPS contributions - nevertheless this is an excellent scheme and membership should be maintained.

If you contribute to a personal pension then tax relief will be claimed by the pension provider and added to your pot.

stoozie1

You aren't capped at £2880 net contributions, you are capped at your total pensionable earnings. So £8k net in your case.

xylophone

See also

https://www.gov.uk/government/publications/your-new-state-pension-explained/your-state-pension-explained

kidmugsy

paulandjanine wrote: »

Does it matter the monetary amount paid to NIs? If I earn less/pay less than someone full-time, does that count against me? Or is it just a 'stamp' that is credited regardless of whether you earn £10k or £50k

As I understand it (any experts around?) even if your salary is too low to get you credited with NICs (national insurance contributions) then your getting child benefits should get you the credits instead. As for your husband, if his employment doesn't earn him NIC credits, he could choose to pay self-employed NICs. I think you said he's doing that?

paulandjanine wrote: »

Ah, makes sense now. But, I understand not in the LGPS as it's 'net pay', and so to get this we would be better to contribute to an SIPP?

The lack of tax relief is frustrating but nevertheless the scheme is such a good deal that you'd be mad not to stay an active member. It may mean, though, that paying AVCs isn't a good bet. (LGPS experts?) So instead you might pay into a personal pension of some sort. Some of the pension experts here have suggested that a good beginner's style of personal pension is called a "stakeholder pension". Apparently a good place to open one is via the firm Cavendish Online.

ChasingtheWelshdream

Thank you all, you have explained everything in a way I can understand and given me real food for thought.

I am sorry I went quiet yesterday, I had trouble replying and then my IP address was banned - I’m not sure what I did! ��

So, our plan of action is:

Check all our NI stamps are up to date and see our pension forecast.

See whether I should be transferring my previous LGPS to my current authority, or leave it alone

Open a private pension to get tax relief benefits, rather than making AVCs to our LGPS. Decide whether a SIPP or a stakeholder is best.

Also build up our savings!

I have also been told I can purchase additional pension, which is different to AVCs. Is that still not beneficial if I don’t get tax relief?

Again, thanks for all your help!��

ChasingtheWelshdream

kidmugsy wrote: »

As I understand it (any experts around?) even if your salary is too low to get you credited with NICs (national insurance contributions) then your getting child benefits should get you the credits instead. As for your husband, if his employment doesn't earn him NIC credits, he could choose to pay self-employed NICs. I think you said he's doing that?





The lack of tax relief is frustrating but nevertheless the scheme is such a good deal that you'd be mad not to stay an active member. It may mean, though, that paying AVCs isn't a good bet. (LGPS experts?) So instead you might pay into a personal pension of some sort. Some of the pension experts here have suggested that a good beginner's style of personal pension is called a "stakeholder pension". Apparently a good place to open one is via the firm Cavendish Online.

Yes, I get credited as I have child benefit in my name, and hubby pays his voluntarily each year as part of his self-employment. We also now both earn enough to pay via our salaries (hubby most months anyway)

When the kids are older though, I didn’t know if your actual salary was taken into account, or if once you pay stamps, you are credited no differently to a higher earner.

We will be staying in the LGPS. When we took out our first mortgage, and wasn’t a member, I was told in no uncertain terms to join it and never leave! �� It’s a good thing I like working for councils!