SIPP for low earner

Albermarle

So, job for tomorrow is to reduce the percentage she sacrifices down to 7.5%, (currently 10%)

Just be aware that some employers only allow you to change the % once or twice a year. Hopefully this one is more flexible.

xylophone

This is partly why I asked the question - it really isn’t clear whether low earners can contribute based on their earnings or whether they are limited to £2880.

https://www.litrg.org.uk/tax-guides/tax-basics/do-i-have-join-pension-scheme/do-you-know-how-tax-relief-your-pension#:~:text=Non-taxpayers (that is,,get 40% pension tax relief

Example

Jo earns £950 per month. Jo puts in £15 of her pay into her pension scheme every month. The pension scheme operates under net pay arrangements, so her employer deducts the pension contribution before calculating tax. This means Jo’s earnings are taken to be £935 for tax purposes instead of £950. However, as Jo’s earnings fall below the usual monthly threshold for paying income tax (£1,048 for 2022/23), this reduction in taxable income makes no difference and she gets no tax relief on the contributions paid.

If Jo was in a relief at source scheme, her taxable employment income would be £950 a month. She would still not pay any tax, but she would only have to put 80% of £15 (that is, £12) of her pay into her pension pot – the rest is paid into it for her by the government. She is therefore £3 a month, or £36 a year, better off under a relief at source scheme.

Personal pensions/stakeholders/SIPPS operate relief at source.

To take another example, suppose  Mary Smith's only  income arises from her part time job as a self employed gardener.

She is aged under 75 and so is entitled to tax relief on her  contributions to her stakeholder pension.

She earns just £12,570 a year ( so is not liable for tax) and her personal situation means she has very little  by way of personal/living expenses as these are met by eg her spouse.

She decides she wants to make as much provision as possible for retirement.

She makes a net contribution of  £10,056 to her pension and  the pension provider claims tax relief of £2514 and adds it to her pot.