Useing the £2,880/£3,600 contributions rule and the new flat Personal Allowances until 2026

drumtochty

If a non earner is contributing £2,880 net per year to a pension and they already have the new state pension of £9,338 pa from 6 April 2021 but no other taxable income. The years ending April 2025 and April 2026 they will be paying income tax of £8 and £48 respectively. Due to the state pension increasing and the personal allownce being frozen at 2021 2022 rates.

Therefore, still worth doing to get the £900 PA tax free sum.

If they already have say £1,500 a year or so income from a small occupational pension, for working 10 years part time as a low paid admin person before retirement which is not untypical. The tax take in 2022 is £194 raising to £373 in 2026 off their £900 tax free sum. A bit of a hit.

Increase that same possible occupational pension to £2,500 a year and the average tax take from the £2,880 contribution after inflation on the state pension and possible occupational pension on average in those years is around £490 a year, over half the tax free sum.

Just something to think about.

For those on a basic state pension from before April 2016 and no other taxable income, it is still a good deal.

AlanP_2

For those on a basic state pension from before April 2016 and no other taxable income, it is still a good deal.

Irrespective of taxable income up to the limit of BR tax on it when withdrawn it is a good deal as it equates to a risk free 6.25% return which you won't match anywhere else.

The return if you have no additional income is better I agree.

molerat

Things are going to get a little more complicated over the next few years.  MrsM gives me her 10% so she pays a bit of tax at 19% but I save more than she pays.  I will be getting closer to 21% so will have to wait and see what the SG does over the bands. Likely still worth it but will have to look at it year by year.

drumtochty

AlanP_2 said:

For those on a basic state pension from before April 2016 and no other taxable income, it is still a good deal.

Irrespective of taxable income up to the limit of BR tax on it when withdrawn it is a good deal as it equates to a risk free 6.25% return which you won't match anywhere else.

The return if you have no additional income is better I agree.

Alan

After looking at it as you say, even if all the taxable income from the SIPP is taxed at the BR rate, you are still getting 6.25% for less hassle than those doing two bank account changes a year to get 2 x £150 cash back.