Pension for Non-Earner

CanISave

I am retired and get my state pension plus former employers pension. My other income fluctuates because it is interest plus rent from a cottage. Some years the cottage is fully let and the income takes me over the higher rate tax limit.
I was wondering about investing in something like a SIPP or a stakeholder pension. I think it would have the effect of keeping me below the tax threshold and allowing me the full £1,000 on my savings.
I could live another 25 years and inflation is a factor I am very aware of. Are there any other pensioners out there taking advantage of this tax break?

NoMore

https://forums.moneysavingexpert.com/discussion/5580163/paying-2880-into-pension-when-retired

Judging by the number of replies on this thread, then yes lots of people take advantage

Paul_Herring

None of the three sources of income mentioned (pensions, interest and rent) count towards 'relevant earnings' for the purposes of pension contributions, so it looks like the maximum you could contribute per year is restricted to £3,600 (£2,880 net).

xylophone

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tax-relief-members-contributions/


Relevant UK earnings

The levels of tax relief available depend on the member's relevant UK earnings in the current tax year.

These are the earnings available to base a pension contribution on. Generally, all earned income is relevant earnings.

It’s sometimes easier to think about what are not relevant earnings and this includes pension income, dividends and most rental income.

HMRC define relevant earnings as:

employment income such as pay, wages, bonus, overtime, commission (providing it is chargeable to tax under Section 7(2) ITEPA 2003)
income chargeable under Part 2 ITTOIA 2005, that is income derived from the carrying on or exercise of a trade, profession or vocation (whether individually or as a partner acting personally in a partnership)
patent income, where the individual alone or jointly devised the invention for which the patent in question is granted, in certain specific categories
general earnings from an overseas Crown employment which are subject to tax in accordance with section 28 of ITEPA 2003
rental income is generally not relevant earnings but some rental income may be included if it is in respect of UK or EEA furnished holiday lettings business

As has been said above, assuming that your rental income does not come under the exception above, you will be limited to a net contribution of £2880 - the provider will claim tax relief of £720 and add it to your pension.

The gross pension contribution of £3600 should be reported on your tax return.

A retired relative (under 75) with pension income that would take him into higher rate tax contributes the maximum to a HL SIPP to keep him in the basic rate band.