Paying into a pension without working

lazyred

Student loan repayment assessments are not straight forward. Its worth paying 2880 into a SIPP but you may still have to pay loan repayments. I am considering an OU degree in retirement and I'm not certain what my SL payments would be. The best answer I can find is on the folloiwng link fron 2017

https://www.whatdotheyknow.com/request/pension_income_included_in_incom

This states the test for earned income is  NI income not taxable income - I asume to prevent the scenario you propose. Of course pension income is not liable for NI and here is where it gets conplicated. In addition to earned income you pay 9% of all other income above 2000 but only if you complete a self assessment form. It is confusing because it also refers to a requirement for total income to be above the threshold (21000 in 2017)

Dont take the above as gospel. Please do your own research. I'd love to know if you get a definitive answer.

Shedman

With regard to putting the money into a pension (SIPP) without incurring large fees you could have a look at a Fidelity SIPP and invest in what they refer to as Exchange-Traded Instruments (basically Shares, Investment Trusts and ETFs) and would therefore only pay a maximum of £45 per annum.  You have a separate Cash Management account where they take the fees from on a monthly basis and which you can top up anytime so don't have to hold cash in the SIPP for the fees.   

https://www.fidelity.co.uk/services/sipp/fees-and-charges/   The important bit is in the text just below the table.  ".....For exchange-traded instruments, this portion of the fee is capped at £45....."

I believe that they will charge a minimum of £45 if the pot is less than £7,500 so this could make the first couple of years a bit higher in percentage terms eg 1.25% on the first years gross £3,600, 0.625% for year 2. However, if you also say held a S&S ISA with them as well and also invested that in exchange-traded instruments then the fee would only be £45 across the lot.

armour999

Dazed_and_C0nfused said:

I would pay £2,880 into a pension within the next week, mention that I had done so in this year's tax return and the taxman would then bump it up to £3,600.

No.  The pension company, courtesy of HMRC, will add the basic rate tax relief to your pension fund.

Do you already complete Self Assessment returns?

Do you expect to be liable to higher rate tax?

If my income (before paying into this theoretical pension) was £30.000, that would leave me with a taxable income of £27,120 of which £120 would be liable for 9% Student Loan Repayment (SLR). i.e. £10.80

The gross contribution would be £3,600 not £2,880.  This would not change your taxable income at all though.

You are also overcomplicating things with reference to 15% tax.  There is no such rate, not even for Scottish residents.  You could have a TFLS and taxable income on which you may be liable to 20%®tax.

Thanks for your input D&C but I must say, I feel dazed and confused now.

I do already complete SA returns

I do not expect to become liable for higher rate tax, though I will be paying some Capital Gains Tax in 2-4 yrs time.

Perhaps you could confirm the following:

From a £30,000 income, of which only £2,000 is 'earned', the maximum amount I could pay towards a pension is £2,880.

This would result in £3,600 in the pension pot once tax paid is claimed back.

For Student Loan Repayment Calculation Purposes, my income would remain at £30,000 and so my liability would remain at 9% of £(30,000-27,295) = £243.45

BTW, my '15% on the way out'  was intended as a simplification of the 25% tax free element of pension withdrawls and the 20% tax I would pay on the rest. As a rule of thumb, this is correct, no?

Dazed_and_C0nfused

From a £30,000 income, of which only £2,000 is 'earned', the maximum amount I could pay towards a pension is £2,880.

Yes.

This would result in £3,600 in the pension pot once tax paid is claimed back.

Yes.  But not for the reason you give.  Whether you pay tax or not is irrelevant, qualifying contributions i.e. £2,880 for a non or very low earner, will always have basic rate tax relief added irrespective of whether you pay tax or not.  There is no link between the basic rate relief added to the pension and any tax you may or may not pay.

For Student Loan Repayment Calculation Purposes, my income would remain at £30,000 and so my liability would remain at 9% of £(30,000-27,295) = £243.45

I don't know much about student loans but I do know that relief at source pension contributions don't reduce your taxable income.  

They do however appear to reduce the amount used to calculate student loans.  

Why not work through your own example using pages TCSN 46 to TCSN 50 of the working sheet in the Self Assessment tax calculation summary notes here,

https://www.gov.uk/government/publications/self-assessment-tax-calculation-summary-sa110

armour999

Thanks for the tip D&C.

Just manipulated my last tax return and yes, paying into a pension WILL reduce the amount of Student loan repayment I have to make.

On last year's £30,527 income I paid £355 SLR.

Had I shoved the max amount into a pension, the amount of SLR would have been £31.

Lazyred, Hope this thread has helped but, regardless of finance, I would say that I really enjoyed the OU degree I completed (partly) in retirement, so my advice would be go for it!

Shedman, Thanks for your timely input too. I'm definately going to get a pension now, so I'll have a look at the Fidelity offering you suggest.

If anyone has any other pension provider suggestions, please post, I haven't much time to make a decision.

Thanks to everyone who has contributed,

Chris.

Mr_Countdown

Apologies for jumping on this post but I have a very quick question on the same/similar subject. I am retiring at 54 (born March 1968) and plan when I'm 55 to put £2880 into a SIIP to get the £800 tax relief uplift.
My question is can I put £2800 in in March 2023 after I turn 55 and then again after 6 April 2023 when it is a new tax year?
Hope that makes sense. Thank you.

Dazed_and_C0nfused

It's only £720 tax relief not £800 but yes you can put £2,880 in each tax year.

You don't have to wait until you are 55 though.

You could potentially do it before 6 April 2022 as well.

Albermarle

Dazed_and_C0nfused said:

It's only £720 tax relief not £800 but yes you can put £2,880 in each tax year.

You don't have to wait until you are 55 though.

You could potentially do it before 6 April 2022 as well.

Although if the OP has been earning income /salary /paying into a pension during 21/22 , then that would be different .

Dazed_and_C0nfused

Albermarle said:

Dazed_and_C0nfused said:

It's only £720 tax relief not £800 but yes you can put £2,880 in each tax year.

You don't have to wait until you are 55 though.

You could potentially do it before 6 April 2022 as well.

Although if the OP has been earning income /salary /paying into a pension during 21/22 , then that would be different .

True, it just seemed a slightly odd comment about contributing after they were 55 and I thought maybe there was a misapprehension somewhere!

Mr_Countdown

Many thanks Dazed_and_C0nfused and Albermarle for your replies. And thanks for correcting me on the figures.
I an retiring/resigning at the end of April 2022 so will have had a full years worth of wages for 21/22.
For some reason I thought I had to be 55 or over to do it tho?