Government contributions

Daz2009

3 months ago I moved my personal pension to Vanguard.
I've made 3 monthly contributions since but the 1st government contribution is only being added for May.
What's happened to the contributions for March and April ? Will they magically appear at some point ?
I have messaged Vanguard btw

Knock_Rock

It takes 6-8 weeks for HMRC contributions to reach your account.......is what fidelity say in my sipp.
Often it is a little longer.

Dazed_and_C0nfused

I suspect you have had tax relief for March but not April and May.

Vanguard do not prefund the tax relief, no need to contact them as it is explained on their website.

https://www.vanguardinvestor.co.uk/need-help/answer/when-will-i-receive-the-tax-reclaim-for-my-pension

Daz2009

Thanks guys

LHW99

II have reckoned it could take up to eleven weeks!

dunstonh

What's happened to the contributions for March and April ? Will they magically appear at some point ?
I have messaged Vanguard btw

You are probably used to a provider that prefunds the tax relief at source. i.e. they include it on day one with their own money and claim it back.   Vanguard do not prefund tax relief 9they don't prefund on purchases or switches I believe either).  So, you have to wait for them to get the tax relief before they add it your pension.  Tax relief can take up to 11 weeks (48-78 days is the typical range based on when the submissions can be made and when in the month the payment is collected)

The impact of pre-funding is often not realised.     The Lang Cat did a publication some years back in its its example, it showed a £50,000 gross contribution on the 5th March 2013 could have made £635 more in growth if the platform pre-funded the tax relief compared to one that didn't (based on the period 5/3/13 to 22/5/13 (78 days to recover the tax relief from non-prefunding).   That a difference of 1.27% for the non-prefunding platform.

So, when looking at charges, going with the cheapest that doesn't prefund can actually cost you more than going with a more expensive one that does prefund.

zagfles

dunstonh said:

What's happened to the contributions for March and April ? Will they magically appear at some point ?
I have messaged Vanguard btw

You are probably used to a provider that prefunds the tax relief at source. i.e. they include it on day one with their own money and claim it back.   Vanguard do not prefund tax relief 9they don't prefund on purchases or switches I believe either).  So, you have to wait for them to get the tax relief before they add it your pension.  Tax relief can take up to 11 weeks (48-78 days is the typical range based on when the submissions can be made and when in the month the payment is collected)

The impact of pre-funding is often not realised.     The Lang Cat did a publication some years back in its its example, it should a £50,000 gross contribution on the 5th March 2013 could have made £635 more in growth if the platform pre-funded the tax relief compared to one that didn't (based on the period 5/3/13 to 22/5/13 (78 days to recover the tax relief from non-prefunding).   That a difference of 1.27% for the non-prefunding platform.

So, when looking at charges, going with the cheapest that doesn't prefund can actually cost you more than going with a more expensive one that does prefund.

Those seem very cherry picked dates for the example. Looks like it's based on the FTSE 100, which rose 6.3% in that period, which is equivalent to an annual return of 33%. Not really very typical, and based on the longest possible wait for tax relief.

Ironically if the contribution had been a day earlier the tax relief would have come on 22/4/13 when the FTSE was lower, so pre-funding would have resulted in a loss

If you assume a more realistic 6% annual return, and an average 62 day wait for the tax relief, it works out to a bit under 1% of the tax relief, ie 0.2% of the contribution. The latter being the important point - if you already have £100k in the SIPP and add £10k over the year, the contributions are 10% of the pension value and so the pre-funding difference is 0.02% of the SIPP value. So a prefunding platform with a 0.22% fee would be the same as a non prefunding one with a 0.2% fee.

Of course if you want to extreme MSE you might consider contributing to a prefunding platform and periodically transferring in-specie to a cheaper non prefunding one! If there's no charge for transfers etc!

But anyway I think most prefunding platforms insist you use an adviser so that likely add at least 0.5%, which blows any trivial prefunding saving out of the water!

older_and_no_wiser

LHW99 said:

II have reckoned it could take up to eleven weeks!

Yes I'm with II and was told the same. I've just transferred a couple of existing pensions into the II SIPP. I'm interested to know if that 6-11 weeks is for every contribution, or just the initial one as the paperwork and groundwork has to be done by HMRC with the new provider? Seems like government department wheels turn veeerrryy slowly. This is 2021 and surely automated systems should speed things up once the initial checks and balances have been done?
 

dunstonh

 I'm interested to know if that 6-11 weeks is for every contribution, or just the initial one as the paperwork and groundwork has to be done by HMRC with the new provider?

The provider will submit their data to HMRC typically around the same time of each month and there is a deadline in the month to make the next run.

Seems like government department wheels turn veeerrryy slowly. 

Nope. They run nice and smoothly.   However, historically ALL providers and platforms prefunded. So, it wasn't an issue.   In an attempt to reduce overheads, some providers/platforms decided to drop pre-funding.

This is 2021 and surely automated systems should speed things up once the initial checks and balances have been done?

It is largely automated but humans have to sign off on it.

older_and_no_wiser

dunstonh said:

The provider will submit their data to HMRC typically around the same time of each month and there is a deadline in the month to make the next run.

The reason I'm interested is that with II you get a free regular trade each month. I know how much my own regular contribution is each month and when it will go into the II account. However I obviously want that regular trade to include the tax topup. If I don't know when that will hit my ii account each month, then it means I will have to do lots of adhoc non regular investments (for each HMRC tax topup) which may potentially cost me to do - although you are allowed one free investment each month with ii.

coyrls

You can use the ii free regular investment facility for ad hoc investments, if you are prepared to trade on the day of the month that they offer it.  Just set up the trades prior to the date and then delete them after the transactions have happened.