Paying into pension earning less than personal tax allowance

sarahbythesea

My question is in 2 parts and related to the fact that now i work part time earning around £11k pa ie under the personal tax allowance . So first question is can I still put any funds into my personal pension (since I’m not paying tax note that I I do pay around £80 per month into my employer pension through a payroll deduction) ?  I’m concerned that when I pay it into my personal pension it attracts tax relief at source and then I get into trouble with HMRC as I don’t think it should get tax relief if I’m not paying tax on it through my pay ? The second part is then how much can I pay into my personal pension ? Thanks for any advice that people can offer 😊

Exodi

Yes you can, and actually many cite that as the absolute dream scenario with pensions - receiving basic rate tax relief on money you did not pay tax on.

Yes it is allowed, many would relish the opportunity.

The only better scenario would be if you could do it through your workplace pension, if your employer were to increase their contribution as a consequence.

Your personal contributions can not exceed your taxable earnings (e.g. if you earn £11k pa as you say, you can't put more than £11k pa in).

Aretnap

Just to be clear, the maximum gross contribution that you can make is your salary for the tax year. In other words, if your salary is £11000, you can pay in 80% of this (£8800) as a personal contribution, the government will add £2200 tax relief (even though you haven't actually paid any tax on it), leaving you with £11000 in your pension and £2200 in the bank.

Also note that the £11000 includes the £80/month that you are paying via your payroll and the associated tax relief (if your not paying by salary sacrifice), but not any additional employer contributions which are in addition to your salary.

Added: Also note that this assumes you haven't triggered the MPAA by taking cash from a DC pension already (with a couple of exceptions for annuities and very small pots), in which case your totally contributions would be limited to £10000 per year from all sources, including personal contributions, tax relief and employer contributions)

Paul_Herring

can I still put any funds into my personal pension (since I’m not paying tax

Yes. It's a natural extension of the £3,600 gross (£2,800) that non-earners can put into a pension.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82166103#Comment_82166103

The only better scenario would be if you could do it through your workplace pension, if your employer were to increase their contribution as a consequence.

It would not be better if the employer was using net pay or salary sacrifice for pension contributions.

I do pay around £80 per month into my employer pension through a payroll deduction) ?

OP - Do you know if tax relief is added to this £80 a month?

Aretnap

The only better scenario would be if you could do it through your workplace pension, if your employer were to increase their contribution as a consequence.

It would not be better if the employer was using net pay or salary sacrifice for pension contributions.

If your employer matches your contributions then it's better even if they use a salary sacrifice arrangement - a 100% boost from a matched employer contribution beats a 25% boost from tax relief.

But yes if your earnings are below the personal allowance then there's no point making salary sacrifice contributions above and beyond what your employer will match - you'd be better off making the extra contributions as personal ones.

Aretnap

https://forums.moneysavingexpert.com/discussion/comment/82166289#Comment_82166289

It's not really an extension of the £3600 thing - the principle is that everyone can pay up to their earned income (gross)* into a pension and claim tax relief on all of it, regardless of whether they have actually paid tax on some, all or none of that income. Someone earning (say) £20,000 can pay in £16,000 and claim £4000 in tax relief, even though they may only have paid £1486 of actual income tax.

The £3600 thing is more an extension of that principle - if your earned income is very low or zero then the amount you can pay in never drops below £2880 net/£3600 gross until you are 75 years old (at which point it's definitely time to start withdrawing from your pension rather than paying into it).

(*Until you hit the upper limit of the £60,000 annual allowance, but that doesn't sound like it will be a problem for the OP)

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82166524#Comment_82166524

OK, fair comment, but we really need to know the details of the OPs workplace pension arrangements, to be clear what the best course of action is.

kermchem

If the employer pension scheme is using salary sacrifice then the limit on how much the employee can pay into the scheme is that their hourly rate cannot fall below minimum wage.
If a saver on a salary of £11k does pay all of their income (well 80% of it to receive tax relief) into a pension then not only do they get tax relief of tax that they never paid, they also get tax relief on the national insurance that they do pay.

QrizB

they also get tax relief on the national insurance that they do pay.

🤔 How do you figure that?

FIREDreamer

https://forums.moneysavingexpert.com/discussion/comment/82166732#Comment_82166732

https://forums.moneysavingexpert.com/discussion/comment/82166753#Comment_82166753

If the annual salary is under £12,570 there is no employee NI payable anyway.