Pension & benefits confusion

hisfriendmadge

Hello,

I have a SIPP which is made up of frozen pensions from previous employers that I transferred in a number of years ago. At present it is doing ok however I am unable to pay anything into it at the moment.

I am also in my employers pension scheme and I pay 3% voluntary into this. It equates to approx. £50.

I am a single mum with 1 fifteen year old daughter and I'm struggling on a low wage.

My query is as follows......

Next year my daughter would be of an age to apply for EMA (Education Maintenance Allowance). This is awarded based on household income. On my present income I earn £600 over the amount to be eligible.

EMA allows deductions for payments made to a personal pension but not to a works based scheme.

Would it be better for me to stop the extra payments to my works pension and instead pay that money into my SIPP? This would then be deducted from my total income make me eligible for my dd to receive the EMA.

Is this allowed? I'm not even sure.

Thanks for any advice.

lisyloo

Would it be better for me to stop the extra payments to my works pension and instead pay that money into my SIPP?

Probably not.
Your employer is contributing ay least 2% so you will lose this if you opt out.


Do you know how much EMA your daughter would get? so you can compare it with the money you'll lose from your pension?

hisfriendmadge

Hi Lisyloo,

Thanks for the reply.

My employer pays 5% into the works pension scheme for me. I pay an additional 3%.

I wouldn't be opting out of my works pension, just not making extra voluntary payments in on top of my employers contribution.

I'm wondering if I should pay my 3% voluntary payment into my SIPP instead of my works pension?

Cheers

AlanP_2

Will the employer still contribute if you contribute nothing to it?

hisfriendmadge

Ahhh ok. I get what you are both saying now. I misunderstood.

I'm going to speak to the Accountant and see what the craic is with what I pay and what they pay.

I'll come back.
Thanks!

AnotherJoe

If your employer doesn't add anything for your additional contribution then on the face of it yes, a personal pension that would lower your salary according to the grant scheme would seem to be a good idea.
Presumably it will only be for a couple of years anyway unless it also counts for student grants??

hisfriendmadge

I just got clarification from the Accountant.

My company pays 5% into the company pension scheme regardless of whether I pay anything or not.

From 2019 they will pay 8% in whether I do or not.

AnotherJoe is correct, it would only be for 2 years.

Thanks

greatkingrat

I think you may have misunderstood the rules. Your workplace contributions have already been deducted from the figure on your P60 so you can't deduct them a second time. If you paid into a personal pension instead then your P60 figure would be higher, then you would deduct the pension contributions. You should end up with the same figure either way.

hisfriendmadge

You're right! I'm not sure I understand at all.

The total earnings to be eligible for the EMA are based on my annual gross income. Even if I pay voluntary contributions into my works scheme surely my gross income will remain the same.

However, if I don't pay voluntary contributions into my works scheme and pay them into my SIPP, this (grossed up) amount will be deducted from my gross income and that is the amount that is looked at for eligibility. According to the gumpf on EMA this deduction is allowed, however payments into a works scheme are not.

Is that not correct?

Thanks

Southend1

Sounds like you should be paying more into your workplace pension, not less, to bring your income net of pension contributions below the relevant threshold.

lisyloo

The total earnings to be eligible for the EMA are based on my annual gross income. Even if I pay voluntary contributions into my works scheme surely my gross income will remain the same.

Not necessarily.
I've reduced my gross salary by £25K by sticking it in my pension.
You can do this for certain benefits (I don't FWIW),


So do your pension contributions get deducted BEFORE you are paid (salary sacrifice) or AFTER?