SIPP considerations when no longer working

zagfles

ljayljay said:

Thanks both for your advice.

It is a DB scheme. I have looked at snowmans spreadsheet which is very useful. I will have a further dig around to check out how to calculate what can be purchased this year. Just had a further check and see that her gross pay for the year was £15,400 icluding employee pension contributions and £14,500 taxable. So, maybe just need to knock £900 off, although be surprised if that simple.

Yes, it is that simple for a low earner in a DB scheme (assuming the MPAA doesn't apply ie she's not flexibly accessed pensions - google "MPAA triggers"). You only need to knock off employee contributions. She can pay £14500 gross into a SIPP, ie pay in £11600 net and the scheme will claim £2900 tax relief.

(The thing that confuses a lot of people is the annual allowance rules around DB schemes are complicated, but the annual allowance is not an issue for low earners unless very unusual circumstances, or the MPAA applies, so the only limit is the tax relief limit of 100% of earnings)

garmeg

zagfles said:

ljayljay said:

Thanks both for your advice.

It is a DB scheme. I have looked at snowmans spreadsheet which is very useful. I will have a further dig around to check out how to calculate what can be purchased this year. Just had a further check and see that her gross pay for the year was £15,400 icluding employee pension contributions and £14,500 taxable. So, maybe just need to knock £900 off, although be surprised if that simple.

Yes, it is that simple for a low earner in a DB scheme (assuming the MPAA doesn't apply ie she's not flexibly accessed pensions - google "MPAA triggers"). You only need to knock off employee contributions. She can pay £14500 gross into a SIPP, ie pay in £11600 net and the scheme will claim £2900 tax relief.

(The thing that confuses a lot of people is the annual allowance rules around DB schemes are complicated, but the annual allowance is not an issue for low earners unless very unusual circumstances, or the MPAA applies, so the only limit is the tax relief limit of 100% of earnings)

@zagfles

The MPAA is irrelevant to DB Schemes I believe.

zagfles

garmeg said:

zagfles said:

ljayljay said:

Thanks both for your advice.

It is a DB scheme. I have looked at snowmans spreadsheet which is very useful. I will have a further dig around to check out how to calculate what can be purchased this year. Just had a further check and see that her gross pay for the year was £15,400 icluding employee pension contributions and £14,500 taxable. So, maybe just need to knock £900 off, although be surprised if that simple.

Yes, it is that simple for a low earner in a DB scheme (assuming the MPAA doesn't apply ie she's not flexibly accessed pensions - google "MPAA triggers"). You only need to knock off employee contributions. She can pay £14500 gross into a SIPP, ie pay in £11600 net and the scheme will claim £2900 tax relief.

(The thing that confuses a lot of people is the annual allowance rules around DB schemes are complicated, but the annual allowance is not an issue for low earners unless very unusual circumstances, or the MPAA applies, so the only limit is the tax relief limit of 100% of earnings)

@zagfles

The MPAA is irrelevant to DB Schemes I believe.

The discussion was about contributions to a SIPP. Those will be restricted by the MPAA if it applies. It almost certainly doesn't here, but it's worth mentioning just in case OP's wife had flexibly accessed a DC pension or if anyone else reading in a similar situation has.

garmeg

zagfles said:

garmeg said:

zagfles said:

ljayljay said:

Thanks both for your advice.

It is a DB scheme. I have looked at snowmans spreadsheet which is very useful. I will have a further dig around to check out how to calculate what can be purchased this year. Just had a further check and see that her gross pay for the year was £15,400 icluding employee pension contributions and £14,500 taxable. So, maybe just need to knock £900 off, although be surprised if that simple.

Yes, it is that simple for a low earner in a DB scheme (assuming the MPAA doesn't apply ie she's not flexibly accessed pensions - google "MPAA triggers"). You only need to knock off employee contributions. She can pay £14500 gross into a SIPP, ie pay in £11600 net and the scheme will claim £2900 tax relief.

(The thing that confuses a lot of people is the annual allowance rules around DB schemes are complicated, but the annual allowance is not an issue for low earners unless very unusual circumstances, or the MPAA applies, so the only limit is the tax relief limit of 100% of earnings)

@zagfles

The MPAA is irrelevant to DB Schemes I believe.

The discussion was about contributions to a SIPP. Those will be restricted by the MPAA if it applies. It almost certainly doesn't here, but it's worth mentioning just in case OP's wife had flexibly accessed a DC pension or if anyone else reading in a similar situation has.

But you did state (my bold):

"(The thing that confuses a lot of people is the annual allowance rules around DB schemes are complicated, but the annual allowance is not an issue for low earners unless very unusual circumstances, or the MPAA applies, so the only limit is the tax relief limit of 100% of earnings)"

Referring to the MPAA was not necessary for DB schemes mentioned in this paragraph. No big deal, maybe I am misunderstanding the context.

zagfles

garmeg said:

zagfles said:

garmeg said:

zagfles said:

ljayljay said:

Thanks both for your advice.

It is a DB scheme. I have looked at snowmans spreadsheet which is very useful. I will have a further dig around to check out how to calculate what can be purchased this year. Just had a further check and see that her gross pay for the year was £15,400 icluding employee pension contributions and £14,500 taxable. So, maybe just need to knock £900 off, although be surprised if that simple.

Yes, it is that simple for a low earner in a DB scheme (assuming the MPAA doesn't apply ie she's not flexibly accessed pensions - google "MPAA triggers"). You only need to knock off employee contributions. She can pay £14500 gross into a SIPP, ie pay in £11600 net and the scheme will claim £2900 tax relief.

(The thing that confuses a lot of people is the annual allowance rules around DB schemes are complicated, but the annual allowance is not an issue for low earners unless very unusual circumstances, or the MPAA applies, so the only limit is the tax relief limit of 100% of earnings)

@zagfles

The MPAA is irrelevant to DB Schemes I believe.

The discussion was about contributions to a SIPP. Those will be restricted by the MPAA if it applies. It almost certainly doesn't here, but it's worth mentioning just in case OP's wife had flexibly accessed a DC pension or if anyone else reading in a similar situation has.

But you did state (my bold):

"(The thing that confuses a lot of people is the annual allowance rules around DB schemes are complicated, but the annual allowance is not an issue for low earners unless very unusual circumstances, or the MPAA applies, so the only limit is the tax relief limit of 100% of earnings)"

Referring to the MPAA was not necessary for DB schemes mentioned in this paragraph. No big deal, maybe I am misunderstanding the context.

Yes it is. You've misunderstood.

The "confusion" I was talking about is that many people here, including IFAs, seem to think the annual allowance is "£40k or earnings if less". Is it not. The annual allowance is £40k for everyone, except very high earners and anyone subject to the MPAA.

But separately, there's a tax relief limit, which is much simpler - you can only get tax relief on 100% of earnings. Stuff like pension input amounts and employer contributions, which are relevant for the AA, are not relevant to the 100% of earnings limit.

So the annual allowance, with its "complicated rules for DB schemes", are not relevant to a low earner. That was the point in the first two clauses. OK?

Which means in the OP's wife's case, the amount she can contribute gross to a SIPP is salary minus employee contributions to the DB scheme. Easy. £15400 minus £900 = £14500 gross, £11,600 net. Not salary minus "pension input amount" to the DB scheme, which is complicated.

But it needs a caveat. It's perfectly possible for someone in the OP's wife's situation (assuming she's over 55, sounds like she is) to be subject to the MPAA. For instance, she might have had a previous occupational DC scheme or a personal pension of £15k which she took in full as a lump sum (UFPLS). That would make her subject to the MPAA.

If that were the case, then the MPAA would be relevant, she would NOT be able to contribute £14500 to a SIPP without being hit by an AA charge. She would be limited by the MPAA.

garmeg

zagfles said:

garmeg said:

zagfles said:

garmeg said:

zagfles said:

ljayljay said:

Thanks both for your advice.

It is a DB scheme. I have looked at snowmans spreadsheet which is very useful. I will have a further dig around to check out how to calculate what can be purchased this year. Just had a further check and see that her gross pay for the year was £15,400 icluding employee pension contributions and £14,500 taxable. So, maybe just need to knock £900 off, although be surprised if that simple.

Yes, it is that simple for a low earner in a DB scheme (assuming the MPAA doesn't apply ie she's not flexibly accessed pensions - google "MPAA triggers"). You only need to knock off employee contributions. She can pay £14500 gross into a SIPP, ie pay in £11600 net and the scheme will claim £2900 tax relief.

(The thing that confuses a lot of people is the annual allowance rules around DB schemes are complicated, but the annual allowance is not an issue for low earners unless very unusual circumstances, or the MPAA applies, so the only limit is the tax relief limit of 100% of earnings)

@zagfles

The MPAA is irrelevant to DB Schemes I believe.

The discussion was about contributions to a SIPP. Those will be restricted by the MPAA if it applies. It almost certainly doesn't here, but it's worth mentioning just in case OP's wife had flexibly accessed a DC pension or if anyone else reading in a similar situation has.

But you did state (my bold):

"(The thing that confuses a lot of people is the annual allowance rules around DB schemes are complicated, but the annual allowance is not an issue for low earners unless very unusual circumstances, or the MPAA applies, so the only limit is the tax relief limit of 100% of earnings)"

Referring to the MPAA was not necessary for DB schemes mentioned in this paragraph. No big deal, maybe I am misunderstanding the context.

Yes it is. You've misunderstood.

The "confusion" I was talking about is that many people here, including IFAs, seem to think the annual allowance is "£40k or earnings if less". Is it not. The annual allowance is £40k for everyone, except very high earners and anyone subject to the MPAA.

But separately, there's a tax relief limit, which is much simpler - you can only get tax relief on 100% of earnings. Stuff like pension input amounts and employer contributions, which are relevant for the AA, are not relevant to the 100% of earnings limit.

So the annual allowance, with its "complicated rules for DB schemes", are not relevant to a low earner. That was the point in the first two clauses. OK?

Which means in the OP's wife's case, the amount she can contribute gross to a SIPP is salary minus employee contributions to the DB scheme. Easy. £15400 minus £900 = £14500 gross, £11,600 net. Not salary minus "pension input amount" to the DB scheme, which is complicated.

But it needs a caveat. It's perfectly possible for someone in the OP's wife's situation (assuming she's over 55, sounds like she is) to be subject to the MPAA. For instance, she might have had a previous occupational DC scheme or a personal pension of £15k which she took in full as a lump sum (UFPLS). That would make her subject to the MPAA.

If that were the case, then the MPAA would be relevant, she would NOT be able to contribute £14500 to a SIPP without being hit by an AA charge. She would be limited by the MPAA.

Thanks for clarifying.

ljayljay

zagfles said:

ljayljay said:

Thanks both for your advice.

It is a DB scheme. I have looked at snowmans spreadsheet which is very useful. I will have a further dig around to check out how to calculate what can be purchased this year. Just had a further check and see that her gross pay for the year was £15,400 icluding employee pension contributions and £14,500 taxable. So, maybe just need to knock £900 off, although be surprised if that simple.

Yes, it is that simple for a low earner in a DB scheme (assuming the MPAA doesn't apply ie she's not flexibly accessed pensions - google "MPAA triggers"). You only need to knock off employee contributions. She can pay £14500 gross into a SIPP, ie pay in £11600 net and the scheme will claim £2900 tax relief.

(The thing that confuses a lot of people is the annual allowance rules around DB schemes are complicated, but the annual allowance is not an issue for low earners unless very unusual circumstances, or the MPAA applies, so the only limit is the tax relief limit of 100% of earnings)

Thanks...just checked final payslip again and it also shows employers contribution of £3,700 when finished working in August 20. So, from what you are saying this doesn't also need to be deducted from the £15,400? Looking at your later posts I can confirm that she is over 55 and hasn't drawn from any pension as of yet and currently only has the DB pension when 60 next year.

I have had a quick look at the various platforms and for the size of this SIPP am leaning towards an account with Vanguard.

jamesd

Deduct just her personal contribution.

She can ignore the 40k and annual allowance discussion because it's not credible that her DB pension value will increase by over £100k (40k avail for this year and unused parts of 40k for last three years) and DB allowance isn't reduced by the MPAA.