New pension and not working

RaiRai25

Hello Everyone

I was wondering if you can help with the following.

 

I am 50 and not currently employed. What are my options if I wish to pay into a pension.

1.      I believe you are entitled to pay £2880 in a pension and the government will top up 25%. If so do I pay the full amount and have to apply for a refund or does the pension company just add it on immediately and buy 25% more and then claim the money from the government?

2.      I believe you can pay in unused contributions for the previous 3 years. Does this mean that I can pay in 2880 x 4? I do not currently have a private pension, just the state pension and an NHS pension from a number of years ago that will pay 4k a year and I have been told to leave as it is index linked

3.      What type of pensions can I open? SIPP or another?

4.      If I got a partime job paying say 8k pa could I put the full amount into a private pension?

5.      If you paid all your wage into a pension how does this work regarding NI contributions. Are they taken out first or do you get credits?

Many thanks in advance

QrizB

1. The pension company does it automatically, you don't need to claim.

2. No, to use carry forward you have to use your entire £60k allowance for the current year first, which means having earned income ofat least  £60k. You don't.

3. There are various types of personal pension, but they mostly work in a similar way.

4. Yes.

5. This one's more complicated, but for a personal pension (rather than a workplace one) you need to be paid your earnings first, then pay those into your pension. For low earners this works in your favour, as the tax relief is potentially greater than the tax and NI you've actually paid.

DRS1

RaiRai25 said:

Hello Everyone

I was wondering if you can help with the following.

 

I am 50 and not currently employed. What are my options if I wish to pay into a pension. A job would help.

1.      I believe you are entitled to pay £2880 in a pension and the government will top up 25%. Yes If so do I pay the full amount No and have to apply for a refund No or does the pension company just add it on immediately Not immediately They get it from HMRC before it can be invested and buy 25% more and then claim the money from the government?

2.      I believe you can pay in unused contributions for the previous 3 years. Only if you have a well paid job Does this mean that I can pay in 2880 x 4? No I do not currently have a private pension, just the state pension and an NHS pension from a number of years ago that will pay 4k a year and I have been told to leave as it is index linked

3.      What type of pensions can I open? SIPP or another? Yes

4.      If I got a partime job paying say 8k pa could I put the full amount into a private pension? Yes.  In theory but if your contributions are by salary sacrifice you can only sacrifice down to the national minimum wage

5.      If you paid all your wage into a pension how does this work regarding NI contributions. If you salary sacrifice it saves on NICs but other methods of contributing don't.  Are they taken out first or do you get credits?

Many thanks in advance

You should have a read of this forum.  It will give you most of the answers to your questions.

RaiRai25

Hi I appreciate the replies and will scan the threads some more.

 

I did not know about the minimum wage requirements.

If I get paid my wage can I then invest it in a SIPP myself and avoid the MWRs? From examples ive seem they say people earning over 40k a year can pay all their earnings into a SIPP up to a maximin of 60k py?

QrizB

RaiRai25 said:

If I get paid my wage can I then invest it in a SIPP myself and avoid the MWRs?

Yes, minimum wage applies to your employer paying you. What you do with it once you've been paid is your business not theirs.

Sarahspangles

RaiRai25 said:

Hi I appreciate the replies and will scan the threads some more.

I did not know about the minimum wage requirements.

If I get paid my wage can I then invest it in a SIPP myself and avoid the MWRs? From examples ive seem they say people earning over 40k a year can pay all their earnings into a SIPP up to a maximin of 60k py?

Someone who earns £41k can pay it all into a pension, but they can’t withdraw savings and top that contribution up to £60k. For most people, this is the constraint they need to be aware of.

Someone who earns over £60k needs to be aware of a different limit, the Annual Allowance. This is currently £60k. They can pay in more than £60k by using carry forward from previous years, but eventually they run out of headroom.

RaiRai25

So am I correct in the following examples:

1. I earn 6k pa. This is under the NI cap so pay no NI. However I could not do SS am it would take me below MW. So i could be paid and then pay it into a SIPP myself. If I earnt 20k from other sources this would allow me to get 20% tax added to my pension on the 6k SIPP contribution? (as I would not normally pay 1k pay due to the other income). Or do I have to claim it though SA can then the 1k would be paid back to me and not into the pension.

2. I earn 40k pa. I could only SS the amount that would take me down to the NMW (I guess this would depend on the number of hours worked). Now if I got paid this 40k (with tax taken out and NI) I could then pay the full amount in to a SIPP? Would I at this time get an additional 20% added back on TO the contributions I make (which would be less than 40k) to bring it back up to the full pay (minis NI?)
As my income would be 60k (40k wage, 20k other income) I would be a higher rate taxpayer and pay 40% on the amount over 50270. Could then claim this extra tax back through self assessment? But am I correct in thinking this is returned to me and not my pension?

Only just looking into this today and this is my understanding on limited research?

Many thanks

dunstonh

1. I earn 6k pa. This is under the NI cap so pay no NI. However I could not do SS am it would take me below MW. So i could be paid and then pay it into a SIPP myself. If I earnt 20k from other sources this would allow me to get 20% tax added to my pension on the 6k SIPP contribution? (as I would not normally pay 1k pay due to the other income). Or do I have to claim it though SA can then the 1k would be paid back to me and not into the pension.

If you earn £6000 you can contribute £6000 to the pension.    Tax relief is not an addition. It is a relief. i.e. a reduction.  So, a £6,000 pension contribution would be a net payment of £4,800.       Pension contributions are gross and that is the figure you use for calculations.  

To pay more than £6,000 you would need further income from employment or self employment or access to employer contributions. 

QrizB

You seem to be keen to make this complicated, considering your current situation!

RaiRai25 said:

I am 50 and not currently employed. What are my options if I wish to pay into a pension.

If you've had no earned income all tax year (since 6th April 2024) you are limited to contributing £2880 to a relief-at-source (RAS) pension. You will receive 25% tax relief, £720, making your gross pension contribution £3600.

If I got a partime job paying say 8k pa could I put the full amount into a private pension?

If your earnings this tax year are £8k gross, and you have no other income, you'll pay no tax. (Whether you pay NI or not will depend on how many weeks the £8k is spread over.) You'll be able to pay £6400 into a RAS pension and receive £1600 tax relief, total gross contribution £8000.

Salary sacrifice on an £8k pa job is likely to leave you in a worse position than RAS contributions would.

I [get a job paying] 40k pa.

If you were to get a job paying £40k pa, and your employer offers salary sacrifice, then you would be able to sacrifice down to minimum wage. Let's say NMW for your working pattern works out as £20k pa. You could salsac £20k into your pension. The remaining £20k would be paid to you net of tax an NI.

You could then pay £16k into a RAS pension and receive £4k tax relief, taking your RAS contribution up to £20k.

Marcon

DRS1 said:

RaiRai25 said:

Hello Everyone

I was wondering if you can help with the following.

 

I am 50 and not currently employed. What are my options if I wish to pay into a pension. A job would help.

1.      I believe you are entitled to pay £2880 in a pension and the government will top up 25%. Yes If so do I pay the full amount No and have to apply for a refund No or does the pension company just add it on immediately Not immediately They get it from HMRC before it can be invested and buy 25% more and then claim the money from the government?

2.      I believe you can pay in unused contributions for the previous 3 years. Only if you have a well paid job Does this mean that I can pay in 2880 x 4? No I do not currently have a private pension, just the state pension and an NHS pension from a number of years ago that will pay 4k a year and I have been told to leave as it is index linked

3.      What type of pensions can I open? SIPP or another? Yes

4.      If I got a partime job paying say 8k pa could I put the full amount into a private pension? Yes.  In theory but if your contributions are by salary sacrifice you can only sacrifice down to the national minimum wage

5.      If you paid all your wage into a pension how does this work regarding NI contributions. If you salary sacrifice it saves on NICs but other methods of contributing don't.  Are they taken out first or do you get credits?

Many thanks in advance

You should have a read of this forum.  It will give you most of the answers to your questions.

Not everybody wants (or needs) to plough through the many thousands of threads on this forum, especially those with little knowledge of pensions. Sometimes even spotting that someone else has actually asked the same question is less than straightforward, so it's not unreasonable for newcomers to ask rather than research.

That said, I agree with your comment!

Albermarle

Probably worth noting that the salary sacrifice method of making pension contributions is only used by some employers.
So when you get a new job you need to find out more details of what the employer offers as a pension.