Paying into a SIPP when reliant on UC - any advice?

PostHoc25

michaels said:

Thanks. As noted above, money in pension does not get counted against the 6-16k capital rule but instead counts as income when drawn out.

Ah, thanks for clarifying. Part of the issue with the moneyhelper line was the pensions guy ONLY knew about pensions and the Benefits advisor ONLY knew about benefits and quoted the £6-£16K. Will ponder a little more on pensions in that case.

michaels

PostHoc25 said:

michaels said:

Thanks. As noted above, money in pension does not get counted against the 6-16k capital rule but instead counts as income when drawn out.

Ah, thanks for clarifying. Part of the issue with the moneyhelper line was the pensions guy ONLY knew about pensions and the Benefits advisor ONLY knew about benefits and quoted the £6-£16K. Will ponder a little more on pensions in that case.

Also you can put up to 2880 into a pension each year and the govt will add on 25% more (so put in £300 and you will have £375 in your pension).  But the impact on what you might get when you take the money out of your pension needs to be considered, it will depend on what your state pension entitlement is post state pension age and is probably a bad idea to draw out before then (in theory you can draw out any time once you turn 57) as you will lose 55p of UC for each £1 you draw from the pension.

PostHoc25

Update of sorts: So, I'm still very undecided concerning pensions, particularly trying to navigate the ethics of it all. My intermediate plan is to save £500 in my Triodos savings (currently have £345 saved) then transfer it to one of their ethical savings bonds, and top up when I can with the funds locked in for a year.

Hopefully during that time, I can figure out if there is a truly ethical pension out there and what implications there are for approaching the £6K threshold

Grumpy_chap

PostHoc25 said:

I've decided to opt for a 2 year ISA initially. The £6000 savings threshold that would impact my current benefits, means that realistically, I don't want to accrue more than £3.5-£4K in an ISA (or Pension) 

Money in an ISA will be considered as capital for the purposes of assessing UC eligibility.  
Money in a pension will not.

PostHoc25 said:

if I had to rely on just the state pension. 

Have you checked your state pension forecast?

YellowCarBlueCar

I think you need to separate the two things in your analysis.
-The investment wrapper
-The investment fund

The investment wrapper determines the rules to access the funds, how they are treated in terms of benefit assessment, and how they are treated for tax purposes.

The investment fund determines what investments you're putting your money into (e.g. shares, bonds, property, or any other asset type).

By and large you can buy any investment fund in any wrapper.

Once you decide which wrapper serves your need best you can decide on which fund to put the money into - i.e. it's two separate choices - wrapper and fund.

There are some great posts above pointing out the benefits of each wrapper. I think this summarises them, but I'm sure I'll be corrected if not:

Wrapper	Pros/Cons
Pension	Contributions up to £2,880 per year 'topped-up' by HMRC by 25%. No tax on investment growth. Not counted as capital for benefit assessment. Normally only accessible from your state pension age. 25% of it can be withdrawn tax free. Treated as income when you withdraw it for tax/benefit purposes (an issue for tax only once your income exceeds your personal allowance).
ISA	No tax on investment growth. Accessible any time. Treated as capital for benefit assessment. No tax to pay on withdrawal
Unwrapped Savings	By that I mean any savings account or investment bonds outside pension or ISA. Investment growth is taxable (could be on an annual basis or when you sell depending on the investment). Again if growth is below annual allowances probably not an issue for you? Treated as capital for benefit assessment.

The investment fund within each wrapper is where the ethical choices really come in, so having chosen which wrapper is best for your goals, you can look for a provider which provides the investment funds that you like. Though as pointed out above, a 'whole of market' platform will give you a wide choice.

PostHoc25

PostHoc25

 

said:




if I had to rely on just the state pension. 







Have you checked your state pension forecast?

Yes, I have 27 years up to April 2017 according to my HMRC records so I should reach the 35 fine. I had the option to pay some gaps but the amounts were beyond doable by the deadline 🙄

MallyGirl

https://forums.moneysavingexpert.com/discussion/comment/81856507#Comment_81856507

35 years may not be what you need - what did the forecast actually say?

PostHoc25

https://forums.moneysavingexpert.com/discussion/comment/81856519#Comment_81856519

Hmm, now I'm thinking I didn't get a forecast. Is that different from requesting my NI records? It just says "our records show you have 27 qualifying years up to April 2017. You need at lease 10 qualifying years on NI when you reach state pension age to get any state pension.

The 35 years is from me searching about full pension requirements. Is a forecast something different? Where would I get that from, please?

PostHoc25

https://forums.moneysavingexpert.com/discussion/comment/81856130#Comment_81856130

Thank you so much for the overview. Very helpful. I do want to shift some savings to a pension once my current debts are cleared, hopefully by June, but I also want to be cautious about locking money away too tightly at this point as my situation with housing could change and I may need to have access to funds next year. As always with money, never simple! Your info is super helpful though. Really appreciate it. 😎

MallyGirl

https://forums.moneysavingexpert.com/discussion/comment/81856599#Comment_81856599

The 35 years figure is only relevant for people who started making NI contributions in 2016 or after - youngsters. The rest of us are in a transitional period from the old rules to the new. Your pension forecast will tell you exactly how many years you need as we are all different due to things like contracting out.

Take a look at the guide https://www.moneysavingexpert.com/pensions/voluntary-national-insurance-contributions/?_gl=1azngnjFPAUMTY5MzQ3NTM4LjE3Njg2NjkyMTk._gaNTY5OTI0NzU5LjE2OTQ1NDgyNTE._ga_X74CWQS9F0*czE3Njk1MjcwMjUkbzEyMDUkZzEkdDE3Njk1Mjc0NjkkajQ4JGwwJGgxOTgyOTA4MjE4