Paying into SIPP while receiving defined benefit pension?

allconnected

Having ignored my defined benefit pension scheme successfully for many years, I’m starting to explore the world of private pensions for the first time as retirement  draws closer, as my husband (with no current pension provision other than full state pension) has been left a substantial lump sum, and the tax relief on pension contributions seems to suggest the bulk of it should go into a pension or two (we’re mid-50s)

would anyone be kind enough to comment on a couple of questions:-

1. If I take my defined benefit pension and one or both of us continues to work part time (self employed) for a few years, we can put the equivalent of those part time earnings into, say, a SIPP and get the tax relief added, building up a tax-free pension pot to draw on after the part time work stops? 

2. My husband is currently in part time self employment - do we know how much my husband can pay into a SIPP in 2019/20 when he won’t know how much he’s earned until his self-employed accounts are completed. This wouldn’t normally be done until September/October,  but will he need to complete these before April 5th if he wants to contribute to a SIPP in this tax year? I can find lots of references to the money limits, but not what to do if you don’t complete accounts until after the year end......

I know we probably need proper advice but a few pointers would be much appreciated.

Allconnected.

Dazed_and_C0nfused

we can put the equivalent of those part time earnings into, say, a SIPP and get the tax relief added, building up a tax-free pension pot to draw on after the part time work stops? 

No.  You can put 80% of the business profits into the pension and this is topped up with the tax relief.  For example if profits were £8,000 then you contribute £6,400 and the pension company will add £1,600 basic rate tax relief giving you a pension fund of £8,000.

2. My husband is currently in part time self employment - do we know how much my husband can pay into a SIPP in 2019/20 when he won’t know how much he’s earned until his self-employed accounts are completed. This wouldn’t normally be done until September/October,  but will he need to complete these before April 5th if he wants to contribute to a SIPP in this tax year? I can find lots of references to the money limits, but not what to do if you don’t complete accounts until after the year end......

If his accounts are for a date close to the end of the tax year this can be a little tricky but presumably he has some idea of how much money he is making and will have to estimate it based on this.  He will probably want to err on the cautious side.

allconnected

thanks, Dazed and Confused, that’s the sort of thing I was having  trouble getting my head around - only paying in profits net of a notional 20% tax when the profits will be below the personal allowance and so no actual tax liability.

re accounts, we could estimate conservatively but given his lack of pension and age I’d like to get as much as possible in ASAP, so I think we’ll just bite the bullet and  try to get accounts drawn up by the year end.

thanks again.

Dazed_and_C0nfused

It does seem strange that someone paying no tax can get tax relief added to their pension but there are plenty of posters on here doing it.

If his profits happened to be £12,500 he could in theory add £10,000 and get £2,500 tax relief added to the pension.  Happy days.

BobWelham

Dazed_and_C0nfused said:

If his profits happened to be £12,500 he could in theory add £10,000 and get £2,500 tax relief added to the pension. 

So, similarly, could an employee paid wages of £12,500 p.a. in theory contribute £10,000 to a SIPP and have £2,500 added?
Is it incorrect that his annual SIPP contribution as a non-taxpayer is limited to £2,880, grossed up to £3,600?
Is it in fact his annual 'relevant earnings' of £12,500 that impose the contribution limit?

Though a non-taxpayer, he would nevertheless pay employee NI contributions that I calculate to be £464.10 p.a. (for 2019-20)
Could he invoke 'salary sacrifice' to make his SIPP contribution and so also avoid these NI contributions?

p00hsticks

BobWelham said:

Could he invoke 'salary sacrifice' to make his SIPP contribution and so also avoid these NI contributions?

I don;t think they'd be allowed to 'salary sacrifice' if it took them below minimum wage levels

Dazed_and_C0nfused

So, similarly, could an employee paid wages of £12,500 p.a. in theory contribute £10,000 to a SIPP and have £2,500 added?

Unlikely as they would need to consider their company pension or auto-enrolment contributions.  But they may be able to put an amount close to it in assuming existing pension contributions were just a few %.

Is it incorrect that his annual SIPP contribution as a non-taxpayer is limited to £2,880, grossed up to £3,600?
Is it in fact his annual 'relevant earnings' of £12,500 that impose the contribution limit?

There is no such rule for "non-taxpayers".

There is a limit of £3,600 (gross) for people with pensionable earnings of less than £3,600 but I don't know why you think that applies to non taxpayers?

BobWelham

Dazed_and_C0nfused said:

So, similarly, could an employee paid wages of £12,500 p.a. in theory contribute £10,000 to a SIPP and have £2,500 added?

Unlikely as they would need to consider their company pension or auto-enrolment contributions.  But they may be able to put an amount close to it in assuming existing pension contributions were just a few %.

Is it incorrect that his annual SIPP contribution as a non-taxpayer is limited to £2,880, grossed up to £3,600?
Is it in fact his annual 'relevant earnings' of £12,500 that impose the contribution limit?

There is no such rule for "non-taxpayers".

There is a limit of £3,600 (gross) for people with pensionable earnings of less than £3,600 but I don't know why you think that applies to non taxpayers?

Thanks, D&C. This is most encouraging and potentially very valuable to a low earning family member.