Mrs GC's Pension

af1963

Grumpy_chap said:

... 

Allowing for her irregular employment, especially if she gets a temp role, it seems as though the best thing would be to:
1. pay £2,880 into a pension now (increased to £3,600 by Rishi),
2. make the maximum she can as work-related contributions (employer and employee)
3. at the end of the tax year make another contribution for the most that is permitted.

If she ends up working part time, it's possible that using the maximum employee pension  contribution might take her well below the tax threshold.  Depending on the type of scheme, there may be no great benefit in reducing salary below that threshold because you then don't get the benefit of the tax relief. Salary sacrifice, and schemes where employee pension contributions are taken from pre-tax salary, don't add any tax relief to your contributions - instead you get the benefit in a reduced tax bill.  But if you are already below the tax threshold, there is no tax to save. 

(Salary sacrifice below the tax threshold can currently still save a bit of NI, but the NI threshold is increasing from July and will then roughly match the tax threshold.)

It can be more effective to make just enough contributions to the work pension scheme to get her taxable salary down to the value of the personal tax allowance. And then if she wants to make additional pension contibutions, do it via a SIPP / personal pension, where tax relief will be added even though she paid no tax on this income. 



 

AlanP_2

In addition to Af1963's comment above - You can ignore Employer Contribution from your calculation if only looking at the "salary" limitation as it doesn't count (it does for AA).

Albermarle

Just to expand on the above. There are three ways to make pension contributions at work ( defined by the employer )
Salary sacrifice
Paying contributions before tax - known as a 'Net Pay Scheme'
Paying contributions after tax - known as a 'relief at source scheme'

Low earners, who do not actually pay tax are penalised for being in the first two schemes, as explained above. I believe there is some legislation in the pipeline to address this.
For the third type of scheme, employees get the tax relief added by the provider regardless of whether they have paid any tax or not.  As explained above if you make separate personal contributions to a pension, it works like a relief at source scheme and tax relief is added automatically.

Grumpy_chap

Thanks for the clarifications about low salaries.  The combinations of Mrs GC's BTL income plus NMW mean that she is unlikely to be under the personal allowance unless she simply does not earn for the full year.  In that later case, she will still gain from the £2,880 (£3.6k) contribution.

Albermarle

Grumpy_chap said:

Thanks for the clarifications about low salaries.  The combinations of Mrs GC's BTL income plus NMW mean that she is unlikely to be under the personal allowance unless she simply does not earn for the full year.  In that later case, she will still gain from the £2,880 (£3.6k) contribution.

To be clear, if she is earning but not paying tax, she can still claim tax relief up to her earnings. So if she earns £5K , she can contribute £4K and £1k tax relief will be added ( even though she has not paid any tax )
The £2880/£3600, only applies to non earners/people being paid less than £3600 per tax year.

Grumpy_chap

Albermarle said:

No here 
Check your State Pension forecast - GOV.UK (www.gov.uk)

OK, so I have used this to check my pension first (before checking for Mrs GC) so that I know how the system works and that I am looking at the correct data.  I think my record is showing everything is good:

Your forecast is £196.35 a week, £853.77 a month, £10,245.26 a year

£196.35 is the most you can get You cannot improve your forecast any more.

Your National Insurance record You do not have any gaps in your record. 

That seems to be as good as it can get - do I need to look for anything beyond that?
How do I know when I have done enough years to not need to continue contributing to still keep full state pension entitlement?
How do I know whether any years were contracted in / out and SERPS?

Dazed_and_C0nfused

Grumpy_chap said:

Albermarle said:

No here 
Check your State Pension forecast - GOV.UK (www.gov.uk)

OK, so I have used this to check my pension first (before checking for Mrs GC) so that I know how the system works and that I am looking at the correct data.  I think my record is showing everything is good:

Your forecast is £196.35 a week, £853.77 a month, £10,245.26 a year

£196.35 is the most you can get You cannot improve your forecast any more.

Your National Insurance record You do not have any gaps in your record. 

That seems to be as good as it can get - do I need to look for anything beyond that?
How do I know when I have done enough years to not need to continue contributing to still keep full state pension entitlement?
How do I know whether any years were contracted in / out and SERPS?

You are under the transitional rules and by 2016 has already accrued more than the standard new State Pension (£185.15 at current rates).

So you get to keep that and it will be increased each year by the double/triple lock.  Paying NI now isn't adding to it.  But helps run the country.

When you read further down was there a reference to a COPE amount?

Grumpy_chap

Dazed_and_C0nfused said:

When you read further down was there a reference to a COPE amount?

I just looked again and I can't see anything that says "COPE" - would it be obvious if it was there?

Dazed_and_C0nfused said:

Paying NI now isn't adding to it.  But helps run the country.

What I meant by the reference to "done enough years to not need to continue contributing" was about needing to keep accruing full years.  So, for example, if I lost my job, I would not need to claim the JSA "stamp".  

Dazed_and_C0nfused

Based on what you've posted you can't improve your pension and haven't been able to since 2016.

So no point paying voluntary NI or signing on just for State Pension purposes.

COPE would be obvious, near the bottom of the forecast.

Grumpy_chap

Thank you, having first understood my state pension, Mrs GC has looked at her information, which is as follows:

Your forecast is £185.15 a week, £805.07 a month, £9,660.86 a year

£185.15 is the most you can get You cannot improve your forecast any more.

Your National Insurance record You have 2 years when you did not contribute enough

So, that's the current maximum state pension and, even though some contribution years were missed, Mrs GC cannot do anything to increase that amount that will be received. 

Then, it does seem as though Mrs GC has some COPE:

You’ve been in a contracted-out pension scheme Like most people, you were contracted out of part of the State Pension

Contracted Out Pension Equivalent (COPE) Your COPE estimate is £3.29 a week

How would she find out where that COPE pension will be paid?