pension contribution when not earning

itwasntme001

My parents are retired and would like to contribute £2880 each to their SIPP to get the £720 "relief". My parents do receive an annuity payment of over £10k but that's the only income they receive (state pension in a few years). Does this count as income so that they are not eligible for the £720 relief (in which case there is no point contributing anything since the annuity income is below the personal allowance)?


If my parents get a part time job, what do they need to keep their earnings to to still get the £720 relief when contributing £2880? Is it £3600 each?


thank you

Dazed_and_confused

You should stop referring to they, you have to look at them individually.

My parents do receive an annuity payment of over £10k but that's the only income they receive (state pension in a few years). Does this count as income so that they are not eligible for the £720 relief

It is someones income but what makes you think that person(s) wouldn't be eligible for tax relief?

If my parents get a part time job, what do they need to keep their earnings to to still get the £720 relief when contributing £2880? Is it £3600 each?

Once someone has taxable income above about £24k (more like £46k outside Scotland) they will probably be entitled to additional tax relief from HMRC.

Assuming you are talking about much lower earnings can you explain why you think this will cause a problem (as far as the pension tax relief is concerned).

dunstonh

My parents are retired and would like to contribute £2880 each to their SIPP to get the £720 "relief".

Technically, they contribute £3600 each and get £720 relief each.

Does this count as income so that they are not eligible for the £720 relief (in which case there is no point contributing anything since the annuity income is below the personal allowance)?

It is not earned income but it doesnt matter.

If my parents get a part time job, what do they need to keep their earnings to to still get the £720 relief when contributing £2880? Is it £3600 each?

it is 100% of earnings or £3600, whichever is higher subject to a £40,000 cap or tapering.

itwasntme001

Thanks for your replies. I guess i should rephrase the question:


Both my parents each receive an annuity payment of around £5k each a year. They will receive full state pension in a few years that will bring them both over the personal allowance. What are their options in terms of pension contributions and the tax relief they could get? Assuming they will not receive any other income. They both have SIPPs that are not in drawdown and the 25% lump sum has not been taken yet.

squirrelpie

Both my parents each receive an annuity payment of around £5k each a year. They will receive full state pension in a few years that will bring them both over the personal allowance. What are their options in terms of pension contributions and the tax relief they could get? Assuming they will not receive any other income. They both have SIPPs that are not in drawdown and the 25% lump sum has not been taken yet.

You seem to have things backwards. Pension income is not considered 'earned' income and doesn't affect anything in this regard. Individuals can contribute up to the total of their 'earned' income in a year to a pension, or £3600 gross if their earned income is less. So there's nothing your parents can do that would reduce their ability to contribute £3600 gross each year to a pension. If they took a job and earned more than £3600 then they could contribute more.

molerat

As they will have no earned income then they are limited to contributing the £2880 net which will be grossed up to £3600. When withdrawing it 75% will be subject to tax (assuming 20%) so they can put £2880 in and get £3060 net out.

Dazed_and_confused

Alternatively each could consider taking it out before the tax year in which their State Pension makes them liable to tax.

The 75% is still taxable income but may not incur any tax if they have sufficient unused Personal Allowance.

xylophone

Neither parent has "relevant earnings"

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

However, each may contribute up to £2880 per tax year to his/her SIPP and the provider will claim £720 from HMRC and add it to the pension.

You mention the possibility of part time employment.

Let's say that father earns £5000 a year and mother £6000.

Father could contribute up to £4000 to his SIPP and the provider would claim up to £1000 from HMRC and add it to the pension.

Mother could contribute up to £4800 to the SIPP and the provider would claim up to £1200 and add it to the pension.

They can continue to contribute and receive tax relief up to age 75.

kidmugsy

itwasntme001 wrote: »

my parents each receive an annuity payment of around £5k each a year. They will receive full state pension in a few years that will bring them both over the personal allowance. What are their options in terms of pension contributions and the tax relief they could get? Assuming they will not receive any other income. They both have SIPPs that are not in drawdown and the 25% lump sum has not been taken yet.

Each has a personal allowance of £11,850 in tax year 18/19. Each can therefore take extra income of about £6,850 without owing income tax. Each could therefore drawdown a taxable £6,850 accompanied by a portion of tax-free lump sum of £2,283 without becoming liable for income tax. If for any reason they want to top up their SIPPs again, each could contribute £3,600 gross, which means £2,880 net.

caveman38

kidmugsy wrote: »

Each has a personal allowance of £11,850 in tax year 18/19. Each can therefore take extra income of about £6,850 without owing income tax. Each could therefore drawdown a taxable £6,850 accompanied by a portion of tax-free lump sum of £2,283 without becoming liable for income tax. If for any reason they want to top up their SIPPs again, each could contribute £3,600 gross, which means £2,880 net.

One thing confuses me from this example is why bother increasing the total value of the SIPP. Once the OP's parents reach SPA (in a few years) with SP, annuity and then drawing down the SIPP, they will be way over the tax threshold. Then apart from TFLS, all the SIPP will be taxable and IR will claw back the monies given by to them on their £2,880 contributions.

itwasntme001

Thanks again for all your replies. Certainly has helped.


The plan is to keep the contributions in the SIPP as my parents estate is well over £1m and pensions/SIPPs can be passed on to beneficiaries without IHT.