Paying in to a pension instead of life insurance tax implications

Elika0215

The short version is, if I pay in to a £10000 in to a pension and therefore receive the 20% tax contribution (I hope I've understood the very basics correctly so far ). If I die before retirement without touching the pension pot, will my next of kin receive (in the above example), £10000 or £12000?
I have enough money budgeted to make a contribution. My logic is that if I die before retirement age, there'll be enough to help out. If I reach retirement though, we'll all benefit from the addition pension income.
Hopefully, that makes sense. Thank you.

Aretnap

The tax relief on a £10000 contribution is actually £2500 (25%). In the event of your death the person or people you have named as your beneficiaries (who can be your next of kin - but don't have to be) would get the full contents of your pension, so in your example £12500 plus or minus any investment growth/loss.

xylophone

How old are you? Are you currently a member of an employer's pension scheme? If so, what is the gross value of your contributions? What does your employer pay?
What are your "relevant earnings" for pension purposes?
Are you intending to increase your contributions to the employer's scheme or start a private pension of your own?
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tax-relief-members-contributions/

Elika0215

xylophone said:

How old are you? Are you currently a member of an employer's pension scheme? If so, what is the gross value of your contributions? What does your employer pay?
What are your "relevant earnings" for pension purposes?
Are you intending to increase your contributions to the employer's scheme or start a private pension of your own?
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tax-relief-members-contributions/

Hi and thanks for the reply. 
I'm only in a part time work so will only be contributing £2880 to a SIPP. My partner has a workplace with the local authority and a SIPP.  I'm not sure what the employer pays. I'll have to check.
Both in our early 50s - hence why I'd prefer to invest as my pot is low although my partners isn't too bad.
I was thinking about just using existing SIPPs rather than new ones. 
That link was for financial advisors only so I couldn't read it - based on the fact that I thought the government contribution was 20% and not 25%, there's a reasonable chance that I wouldn't understand it anyway!

swindiff

You get 20% tax relief based on the gross amount.  So if you pay in £800 the Gross amount is £1000. Tax relief of £200 on a Gross of £1000, therefore 20%.  But if you look at it from the net amount that you contribute.  £800 becomes £1000 which is a 25% increase.

xylophone

That link was for financial advisors only so I couldn't read it 

It is written for financial advisers but anybody can read it.

You mention that you work part time.  Let's take the example of somebody aged under 75 whose only income is his salary (relevant earnings for purposes of pension tax relief) of £10,000 a year.  

 He has no workplace pension.

He could pay up to £8000 into a SIPP and receive tax relief of up to £2000 (even though he had no liability to tax as his income was well within the Personal Allowance).

Let's now suppose that he was a member of  another pension scheme and had made a net contribution of £500  to it - he would have received £125 in tax relief.

This limits the amount he  personally can  contribute to his SIPP and receive tax relief. He can now contribute up to a net £7500 and receive tax relief of up to £1875.

Elika0215

xylophone said:

That link was for financial advisors only so I couldn't read it 

It is written for financial advisers but anybody can read it.

You mention that you work part time.  Let's take the example of somebody aged under 75 whose only income is his salary (relevant earnings for purposes of pension tax relief) of £10,000 a year.  

 He has no workplace pension.

He could pay up to £8000 into a SIPP and receive tax relief of up to £2000 (even though he had no liability to tax as his income was well within the Personal Allowance).

Let's now suppose that he was a member of  another pension scheme and had made a net contribution of £500  to it - he would have received £125 in tax relief.

This limits the amount he  personally can  contribute to his SIPP and receive tax relief. He can now contribute up to a net £7500 and receive tax relief of up to £1875.

Thank you. That's just the level of explanation I needed.
In the example, there's no benefit to paying in to the workplace pension or a SIPP (excluding growth/loss from markets invested in). Is that right?
I'm not sure if workplace pensions (and I'll ask my partner to check with the local authority) contribute a fixed amount or a percentage.
I wonder if I could put some money in a separate SIPP up to £10000 (over the next few years) and then have the option of withdrawing without penalty under the small pot rules, at 55? That's not the intention but I like the idea of the extra flexibility.

Dazed_and_C0nfused

In the example, there's no benefit to paying in to the workplace pension or a SIPP (excluding growth/loss from markets invested in). Is that right?

Isn't turning £8,000 into £10,000 overnight sufficient benefit?

Elika0215

Dazed_and_C0nfused said:

In the example, there's no benefit to paying in to the workplace pension or a SIPP (excluding growth/loss from markets invested in). Is that right?

Isn't turning £8,000 into £10,000 overnight sufficient benefit?

Poorly worded on my part. I have two options; pay in to a workplace or a SIPP. What I meant is, paying in to one of those isn't preferable.

Dazed_and_C0nfused

It can be for some people.  If you are a low earner contributing £8k via your workplace pension might mean just £8k in the pension fund, not £10k a relief at source (SIPP) contribution would result in.

xylophone

If you are a low earner contributing £8k via your workplace pension might mean just £8k in the pension fund, not £10k a relief at source (SIPP) contribution would result in.

Some workplace pensions (like LGPS for example) use the "net pay" method of tax relief rather than the "relief at source" method used by other workplace schemes, personal pensions and SIPPs.

See here https://www.litrg.org.uk/tax-guides/tax-basics/do-i-have-join-pension-scheme/tax-relief-on-pension-contributions

In your own situation, are you a member of a workplace pension scheme? Does it operate NP or RAS?
Do you earn under the personal allowance?