Auto-enrolment or SIPPS

jul1e · 17 August 2017 at 11:18AM

Hello,
I am a supply teacher paid through a payroll company and am due to be enrolled on the NEST pension from September. The payroll company do not make a contribution as the daily rate I am paid is supposed to cover this ( in the same way that I pay both employer and employee NI contributions). I understand that I don't pay tax on the pension contribution though. I am almost 54 (single, no kids) and don't know whether to opt out of the NEST pension and set up a SIPPS instead. I hope to retire at 60 but may have to work longer if that's not financially possible. I had to go on supply due to caring responsibilities. Initially I worked through the LA but the work has now all gone over to agencies so I can't contribute to TPS.
Any advice on NEST v SIPPS would be appreciated.
Thank you.

newatc · 17 August 2017 at 12:25PM

If you are not getting an employer contribution, then I don't see any advantage of a NEST over a SIPP or Personal Pension (provided you choose a good provider with reasonable charges).

jul1e · 17 August 2017 at 1:25PM

Thank you for your reply.
I have no knowledge of how SIPPS work and the more I read about them the more confused I get. Do the contributions have to be taken directly from my pay to be tax free (which is very erratic,obviously no pay in the school holidays) or can I make regular payments from my bank account and claim the tax back?
Also, although the NEST doesn't have employer contributions it is supposed to be safe according to the payroll company - I haven't actually had any in-depth info about it yet) and I am worried that SIPPS might not be.
Thanks

xylophone · 17 August 2017 at 2:20PM

https://www.teachers.org.uk/sites/default/files2014/supply-teachers-pay_-conditions-and-working-time-2016.pdf

All employers including supply agencies are, however, now required to offer workplace pensions to their employees. The introduction of the system is being staged but most large agencies now
have such schemes. In order to be eligible, agency supply teachers must be aged between 22 and State Pension Age and in receipt of earnings of more than £10,000 per year. The employer must pay a minimum pension contribution of 1 per cent of “qualifying earnings”1, rising to 3 per
cent by 2018, while the employee pays a minimum of 0.8 per cent (rising to 4 per cent by 2018) and the Government pays 0.2 per cent (rising to 1 per cent by 2018).

Are there no agencies that you could choose rather than this arrangement?

https://www.teachers.org.uk/sites/default/files2014/supply-teachers-umbrella-limited-companies-2016.pdf

Do you have a deferred pension with TPS from former full time employment by a school?

Have you checked on your new state pension situation?

https://www.gov.uk/check-state-pension

You could consider a stakeholder/personal pension.

https://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/aviva/

Linton · 17 August 2017 at 2:28PM

jul1e wrote: »

Thank you for your reply.
I have no knowledge of how SIPPS work and the more I read about them the more confused I get. Do the contributions have to be taken directly from my pay to be tax free (which is very erratic,obviously no pay in the school holidays) or can I make regular payments from my bank account and claim the tax back?
Also, although the NEST doesn't have employer contributions it is supposed to be safe according to the payroll company - I haven't actually had any in-depth info about it yet) and I am worried that SIPPS might not be.
Thanks

Money can be paid into a pension tax free if this is supported by the payroll/employer. Otherwise you can contribute from your taxed income and HMRC add in the basic rate tax relief. So if you wanted a regular £125 from your gross pay to go into your pension either your employer pays in £125 before calculating tax or you pay in £100 and HMRC contributes £25 some time later.

Things get a bit more complicated if you are a higher rate tax payer, which I assume you are not. With a SIPP you can contribute whenever you want and whatever you want as long as you dont breech any of the HMRC limits.

jul1e · 17 August 2017 at 8:02PM

Thank you newatc, xylophone and Linton for your replies. It is very much appreciated.

xylophone - yes, I do have a deferred pension with TPS from a permanent position and was continuing to pay into this while doing supply through the local authority. Unfortunately most schools now use agencies to employ supply teachers. The agency use a payroll company and it seems there is a loophole here that the employees have to pay both the employee and employer pension contribution. I did phone the umbrella company to check on this.
It is the same for NI contributions, employees pay both parts.
I am investigating using other agencies but so far it seems they all use payroll companies.
( I would love to get away from agencies and was recently offered a part-time job for 1 year in a school I had worked in through the agency. Unfortunately the agency wanted to charge too much for their 'finders fee' and the school withdrew the offer.)

I have checked my state pension which gave an estimate of £135 a week at present and should be on track for the full amount with 6 more years contributions. However, it also states that this may include a COPE amount which may be included in my teacher pension, so I'm not certain that this is how much I will actually get.

Linton - Thank you for clarifying the tax situation for me. Do you think 6 years is long enough to build up a pension through SIPPS at say £100 a month, or would I be better saving into an ISA or other savings product?

newatc · 17 August 2017 at 10:07PM

Hardly seems fair that you are missing out from employers contribution but given that situation I would suggest stakeholder/personal pension. My wife had a plan with Standard Life which performed well. Remember a SIPP requires you to make a selection of fund(s) which you may want to bothered with.
The £1200 a year you plan to put in wouldn't buy a great pension but combined with state pension and you deferred pension, it will help.
Given your age and effect of new pension freedom, you can effectively gain access to the "savings" in a years time if it became neccessary so I suggest that swings it in favour of pension rather than an ISA.
You do need to find out how much the deferred pension is going to pay for proper planning.
As for safety, the payroll company is probably referring to the fund choices that would have to be made in a SIPP. A stakeholder/personal pension will be safe as NEST.

dunstonh · 18 August 2017 at 8:56AM

I have no knowledge of how SIPPS work and the more I read about them the more confused I get.

Of the different types of pensions available, SIPPs are the most advanced option. They are aimed at experienced investors wanting different types of investments not found on stakeholder pensions, personal pensions or AE schemes.

SIPPs are currently the largest area of complaint about pensions with the FOS. Far too many people using them who shouldnt be.

Also, although the NEST doesn't have employer contributions it is supposed to be safe according to the payroll company

Unlike a SIPP, the provider of an AE scheme (or stakeholder or personal pension) has to carry out due diligence on the investment funds offered. This is in part why those pensions get 100% FSCS protection whereas SIPPs do not.

Any advice on NEST v SIPPS would be appreciated.

A bit like comparing a small basic city car with a supercar. These two options are at either extreme of the scale.

xylophone · 18 August 2017 at 9:27AM

I have checked my state pension which gave an estimate of £135 a week at present and should be on track for the full amount with 6 more years contributions.

I am assuming that at by 6 4 2016 you already had 30+ years of NI?

At that date your "starting amount" for new state pension would have been calculated as the HIGHER of (old rules)

£119.30 (BSP) + (SERPS/S2P - deduction for contracting out)

(new rules)

£155.65 - COPE

It seems that your old rules calculation would have been the higher and it seems to have given you a starting amount of £135 (and a few pence probably).

On that basis, contributions or credits for the next six years will give you a full new state pension at your state pension age.

http://www.scottishwidows.co.uk/Extranet/Literature/Doc/FP0587

Will your deferred TPS pension be payable at age 60?

https://www.teacherspensions.co.uk/members/working-life/deferring-your-pension.aspx

Do see if you can find an agency that doesn't use the umbrella system.

jul1e · 18 August 2017 at 2:28PM

Thank you newatc, dunstonh and xylophone, your advice is really appreciated and I am a lot less confused!

I am definitely going to opt out of the NEST scheme. I will look at the stakeholder / personal pension option as I now see that SIPPS are not suitable for me.

I had 33 years of NI contributions as of 6 4 2016 so being able to get a full state pension is good news.

I believe my TPS pension age is 60. I will definitely check this though.

I will have a look at all the links you have kindly posted.

I am trying to get a part-time job with the LA even if i have to do short-term contracts. I find the whole agency/umbrella company system a complete rip-off - both for the schools and the supply teachers. I now earn £25 less per day working through an agency than I did 3 years ago when I did supply work directly with schools. Unfortunately the majority of schools use agencies now. Also, although agencies can't legally force you to be paid through a payroll company in reality there is no choice as if you don't agree to it they won't employ you as they would have to pay the employer NI.

Thank you again for your help. I now have a much better understanding of my options and what I need to do to plan properly for the future.

Auto-enrolment or SIPPS

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