SIPP - Benefits then work query

Pathfinder000

I have been putting £2880 into a SIPP while on Benefits (ESA and was partially moved to UC recently, now on a roughly 75/25 split with UC occupying the 25%).  I am intending to go back to work and most likely will be on a wage where I don't qualify for UC anymore (nor ESA).

Is the allowance additive when you start working or does it reset to £0?  What I mean is will I need to work for say two months before I can add more to the SIPP or do I ignore the £2880 I already added and carry on adding to it like I had worked for that period already?

El_Torro

What matters is how much you earn in that tax year. For example if you earn £10k this tax year you can pay £10k gross into a pension. It doesn't matter when you earn the money, it could be April 2025, or March 2026, or somewhere in between. 

If you earn say £10k this tax year you can't add £3,600 gross plus £10,000 gross to your pension. It's just the £10k. 

singhini

Its additive. 
You have put £3,600 into a pension
Lets say you work between Nov and March earning £2k a month (£10k in the tax year)

NOTE: remember your total allowable (gross) pension contributions for the year = the lower of:

£10,000 (your earnings), or

£60,000 (annual allowance)

So you have £6,400 left to put into a pension (£10,000 less £3,600 already put in)

Marcon

Pathfinder000 said:

I have been putting £2880 into a SIPP while on Benefits (ESA and was partially moved to UC recently, now on a roughly 75/25 split with UC occupying the 25%).  I am intending to go back to work and most likely will be on a wage where I don't qualify for UC anymore (nor ESA).

Is the allowance additive when you start working or does it reset to £0?  What I mean is will I need to work for say two months before I can add more to the SIPP or do I ignore the £2880 I already added and carry on adding to it like I had worked for that period already?

Neither - but happily it's straightforward. You simply need to look at your 'relevant earnings' for each tax year in which you make contributions. For a good clear explanation of what that means and the amounts you can contribute/qualify for tax relief see: https://www.litrg.org.uk/pensions/paying-pensions/tax-relief-pension-contributions

DRS1

Of course your employer will have a pension scheme which you would be expected to join instead of the scheme you have been contributing to so far.  And they may operate salary sacrifice for "your" contributions to that scheme.  Because salary sacrifice contributions are employer contributions they don't count against the limit on your personal tax relievable contributions (they DO count against the annual allowance).

dunstonh

I have been putting £2880 into a SIPP while on Benefits

Do you mean £3600?

You must remember that pension contributions are gross.  What you pay is net.     So, if you paid £2880 then you have been putting £3600 into the SIPP.

Getting this right is important as pension contributions are treated as gross.  If you treat them as net, you may end up overpaying.

Pathfinder000

DRS1 said:

Of course your employer will have a pension scheme which you would be expected to join instead of the scheme you have been contributing to so far.  And they may operate salary sacrifice for "your" contributions to that scheme.  Because salary sacrifice contributions are employer contributions they don't count against the limit on your personal tax relievable contributions (they DO count against the annual allowance).

I don't use employer pension schemes any more, I opt out in favour of sorting it out myself.  I don't want to have to unpick a mess of having many pension schemes each with £25 in them (literally getting 10s of letter every year about it).  

I am a contractor and I dip in and out of contracts usually on a 2-3 month basis.  So I never stay at companies long enough for it to be worthwhile to join there schemes and some companies prefer me to run as self employed so there is that added complication as well.  My yearly gross wage averages around 28k and I prioritise my S&S ISA over SIPP for the most part, but don't hit the limits on that either.  But I do aim to put 10% of my wage into the SIPP yearly.

As to how much I put in and how I understand it, you can put in the total earned within a financial year.  But I do find the tax relief portion confusing.  Is the total you can put in if you earn £10000/year, £10000 or £8000.  I admit to using the calculator at Hargreaves Lansdown to calculate the payments and I only put in what it says before the tax relief. So I hope that is correct.

SVaz

If you contribute £8000,  it gets tax relief of £2000 added ( at basic rate).  

Whatever amount you want in total,  you multiply it by 0.8 - that gives you your portion of the contribution.  

Pathfinder000

Cool, thanks.

Grumpy_chap

Congratulations to the OP on securing employment.

I just thought I'd mention that the £2,880 (£3.6k) or the earned income limits apply on an "exclusive" basis.
My wife once got caught on this.  She had paid her £2,880 (£3.6k) but then got a job for the end of the tax year which meant the £3.6k pension contributions had exceeded her earned income and her annual allowance was breached.

singhini

Grumpy_chap said:

Congratulations to the OP on securing employment.

I just thought I'd mention that the £2,880 (£3.6k) or the earned income limits apply on an "exclusive" basis.
My wife once got caught on this.  She had paid her £2,880 (£3.6k) but then got a job for the end of the tax year which meant the £3.6k pension contributions had exceeded her earned income and her annual allowance was breached.

That's a good point and easily done.