Can I start a SIPP?

Stoodles wrote: »

The Pensions Advice Service says

If you do not pay Income Tax

You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

• you do not pay Income Tax, for example because you’re on a low income
• your pension provider claims tax relief for you at a rate of 20% (relief at source)

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief


I was going to ask a question about this very subject today.

My only income is disability benefits, so well below the Personal Allowance.
As I'm over 55, it looks to me as if I can pay the £2880 into a SIPP, get the tax relief and then withdraw it, with the only cost to me being the management fees.


Surely that can't be right? If it is, it's the only light in an increasingly grim financial tunnel

That is right.
The usual advice here, given fees for closure, is to do as follows.
Year one, put in £2880 to HL* SIPP. It gets bumped up to £3600 about 6 weeks later, at that point, take out £2600, leaving £1k so the account isn't closed with fees to pay.
Year two, put in £2880, it gets bumped up to £3600, take out the full £3600.
Continue until age 75 when you can take out the last £1k.


* because there is no fee for running an Hargreaves Lansdown SIPP with just cash in it.

Stoodles wrote: »

I'm (pleasantly) shocked. Is this a loophole likely to be closed in the Budget, so that I should rush to do it?

I very much doubt it. Two reasons. One, the government wants to encourage people to save for pensions, and two, any cutback will start at the high rate taxpayers, imagine the howls of protest if they closed off a benefit to nonntaxpayers and let 40% taxpayers carry on getting relief. PLus realistically few non taxpayers take advantage of this, so it would be a double political foot in mouth, horrendous headlines & very little revenue raised.

Having said there's no rush, doing it soon would be a good idea so that you can comfortably get your first amount in, in this tax year, and then its not long til next tax year, so your £2880 wouldnt be locked away for too long. Realistically if you start the ball rolling now and I cant recall what paperwork is needed it will be end of the year earliest before you see the £3600 in your new SIPP and thats only three months before you can put the new tranche in, in the next tax year.

boxwood wrote: »

This is amazing if true.

So for Class 1 NI the Lower Earnings Limit is £6,032 so if you earn this or more you qualify to receive NI counting as a Qualifying Year towards State Pension but NI it is not actually deducted from my salary and the company doesn't pay NI either no employers NI or employees NI? No-one pays any NI but I still get a Qualifying Year?

I can earn up to the Primary Threshold of £8,424 and receive NI without without any NI actually being paid?

If neither I or the company pays, is it the Government that pays my contributions?

If I had no other income then there is no income tax on this? Would I need to do a tax return or Self Assessment? I have never done one of those.

When I was earning nothing and had no salary and I wanted to have Qualifying Years for my State Pension I have paid hundreds of pounds for some years! But when you do have some earnings you don't have to pay anything? Why?

It's historic meddling in the way it works. When I first started work, once you passed the LEL you paid NI on all your earnings, which would have a negative effect on your pay if you went from just under the LEL to just over. So a payrise could mean you'd have less take home. But you got the benefits of NI credits.

But this was considered "unfair", so they changed it so you only paid NI on earnings above the LEL.

Then the govt decided to align the LEL with the slightly higher income tax personal allowance to make things "simpler", but this was again considered "unfair" because some people who previously got credits now wouldn't, so they decided to separate the LEL from the threshold at which NI starts becoming payable. Creating this band where you pay no NI but do get credits.

NI is full of unfair anomilies, such as this, such as people who work part of the year can pay NI but not get credits, such as lumpy earnings can mean less NI etc.

boxwood wrote: »

I can do some paid work for the company. If I am able to earn about £7,200 p.a. (so between the Lower Earnings Limit £6,032 up to the Primary Threshold of £8,424 p.a.) would the company have be giving me regular employment throughout the year with wages paid monthy 12 x £600, or if I only worked for 6 months and was paid 6 x £1,200, or 3 months 3 x £1,800 etc. Does salary income have to be regular and not "occassional projects" to count towards NI and Qualfying Years for State Pension and other benefits?

NI works on a pay period basis, so you need to be careful. For instance any income above the UEL won't count towards the total you need. So if you get paid monthly and earned £7000 all in one month, it would not be a qualifying year for the state pension because only £3863 would count and you need £6032.

Would I need a Contract of Employment? Does it matter if you are working for a spouse's company?

Would I need to start doing a tax return (I would have no other income)?

You shouldn't need to do a tax return as an employee. Not sure about contracts etc. Does your husband have an accountant - something to discuss with them.