Pension contributions for non earners

1spiral

I have seen it posted that non earners can make a contribution to their pension of £2880 net (£3600 gross).

A couple of questions if I may.

Is this affected if you have made a drawdown from the scheme (last tax year I took out ~10K)?

Do you pay the £3600 and get a refund or the pay the £2880 and claim the tax back within the scheme? If the latter, who claims the tax back, me or the pension provider (Royal London)?

Thanks in advance.

ColdIron

1spiral said:

Is this affected if you have made a drawdown from the scheme (last tax year I took out ~10K)?

No, it's available to all non (or low) earners

Do you pay the £3600 and get a refund or the pay the £2880 and claim the tax back within the scheme? If the latter, who claims the tax back, me or the pension provider (Royal London)?

You pay in £2,880 and your pension provider automatically claims the rebate and adds it to your pot

xylophone

Are you under age 75?

1spiral

xylophone said:

Are you under age 75?

Yes I am. I'm in my late 50's

1spiral

So just had confirmation back that my plan can accept this.

As a non tax payer it just seems bizarre that I can deposit £2880, the provider claims back £720 from the government. I can then withdraw £3600 tax free (via drawdown) thus getting £720 free money in next to no time.

What am I missing?

ColdIron

1spiral said:

What am I missing?

Nothing, it's how it works, assuming you have sufficient Personal Allowance

Dazed_and_C0nfused

1spiral said:

So just had confirmation back that my plan can accept this.

As a non tax payer it just seems bizarre that I can deposit £2880, the provider claims back £720 from the government. I can then withdraw £3600 tax free (via drawdown) thus getting £720 free money in next to no time.

What am I missing?

It's not "tax free" though.

£900 is tax free and £2,700 is taxable pension income.  The tax due on which will depend on what other taxable income you have.

enthusiasticsaver

1spiral said:

So just had confirmation back that my plan can accept this.

As a non tax payer it just seems bizarre that I can deposit £2880, the provider claims back £720 from the government. I can then withdraw £3600 tax free (via drawdown) thus getting £720 free money in next to no time.

What am I missing?

Nothing.  That is how it works.  I am early retired drawing just enough pension to keep me under the PA.  My DH is withdrawing half of his remaining SIPP this tax year and the rest after April to keep himself on the 25%  tax band then putting £5760 into my SIPP over 2 tax years and HMRC will top it up by £1440. I have done this several times over the 6 years I have been early retired. 

1spiral

Dazed_and_C0nfused said:

1spiral said:

So just had confirmation back that my plan can accept this.

As a non tax payer it just seems bizarre that I can deposit £2880, the provider claims back £720 from the government. I can then withdraw £3600 tax free (via drawdown) thus getting £720 free money in next to no time.

What am I missing?

It's not "tax free" though.

£900 is tax free and £2,700 is taxable pension income.  The tax due on which will depend on what other taxable income you have.

It is in my case though because I'm well below the personal allowance, even if I take the whole 3600 out. That's what seemed really odd. I'm basically being given £720 for free which I can access from the following day. I fully get it if I was a tax payer because they would claw it back when drawn, but I'm not so the £720 is free money.

Albermarle

1spiral said:

Dazed_and_C0nfused said:

1spiral said:

So just had confirmation back that my plan can accept this.

As a non tax payer it just seems bizarre that I can deposit £2880, the provider claims back £720 from the government. I can then withdraw £3600 tax free (via drawdown) thus getting £720 free money in next to no time.

What am I missing?

It's not "tax free" though.

£900 is tax free and £2,700 is taxable pension income.  The tax due on which will depend on what other taxable income you have.

It is in my case though because I'm well below the personal allowance, even if I take the whole 3600 out. That's what seemed really odd. I'm basically being given £720 for free which I can access from the following day. I fully get it if I was a tax payer because they would claw it back when drawn, but I'm not so the £720 is free money.

It is a kind of concession to non earners. The cost is small compared to the many Billions that higher rate tax relief costs the Treasury, that mainly benefits higher earners. Most of which on withdrawal will get 25% tax free and only pay 20% tax on the rest. Their 'free money' is a lot more than £720 a year !

boingy

Yeah, the £2880 thing was a bit of a surprise to me too. Just goes to show you can do as much pre-retirement research as you like but it's still easy to miss something. It can take weeks/months for the tax refund to arrive.

Happy to have the free money but it seems odd to be drawing down from a pension and contributing to it at the same time!