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  • FIRST POST
    • NeilDS
    • By NeilDS 3rd Mar 18, 8:33 AM
    • 2Posts
    • 1Thanks
    NeilDS
    Setting up a self employed personal pension plan
    • #1
    • 3rd Mar 18, 8:33 AM
    Setting up a self employed personal pension plan 3rd Mar 18 at 8:33 AM
    I thought I would ask on here, as this may help other people. My daughter is 35 and has no previous pension contributions. She is now self employed and will be in the 40% tax bracket. She may have more to put in, but I originally thought she may have 4 k to start a pension and avoid the 40% tax rate.

    Contacted find your local Financial Advisor, and they are not interested (and to be honest we don't really want to pay one).. My own FA wanted 1200 to set the scheme up, and I believe a similar amount each time a contribution is made!! The FCA told me Prudential and Aviva do schemes you can join online. I have spoken to a Prudential FA who was very helpful, suggested a stakeholder pension, but you can't do one with them without Financial Advice..

    I have spoken to AVIVa, and the person on the phone seemed to know less than me! This appears to be a catch 22 situation, which must put off a lot of people from starting their own scheme.

    So far the only scheme I have found which I believe you can join online is Legal and General. Are there any other options (presumably NEST)? I now believe she will have 8k to put in. I need to contact HMRC, about how the tax saving will work too. Any help appreciated!
    Last edited by NeilDS; 03-03-2018 at 9:21 AM.
Page 1
    • Dazed and confused
    • By Dazed and confused 3rd Mar 18, 8:49 AM
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    Dazed and confused
    • #2
    • 3rd Mar 18, 8:49 AM
    • #2
    • 3rd Mar 18, 8:49 AM
    I'm sure others will be along to confirm but you/your daughter should be able to open a personal pension (certainly a SIPP and probably a stakeholder) online in a few minutes.

    Not for everyone but I have done it with Hargreaves Lansdown without any hassle whatsoever. Other providers are available

    As far as the tax relief is concerned there is absolutely no need to contact HMRC, in fact doing so may complicate matters.

    All your daughter needs to do is enter details of the pension contributions on her self assessment tax return and then any additional tax relief due will be incorporated into her annual tax calculation.

    The tax relief is given by her basic rate tax band being extended so she can pay more 20% tax and as a consequence she will pay less less 40% tax (assuming she does have a high enough taxable income).

    So if she handed over 4k to the pension company they would add 1k basic rate tax relief so she has 5k in the pension fund. She shows this on her return and the amount of income which can be taxed at the basic rate of 20% is increased by 5,000.

    5,000 taxed at 40% would be 2,000 but if taxed at 20% just 1,000 so a tax saving of 1,000. This benefits her by the reduced tax bill, it does not go into her pension fund but she may of course then be able to make an additional pension contributions and claim further tax relief.

    Will be slightly different if she lives in Scotland.
    Last edited by Dazed and confused; 03-03-2018 at 8:52 AM.
    • kinger101
    • By kinger101 3rd Mar 18, 8:55 AM
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    kinger101
    • #3
    • 3rd Mar 18, 8:55 AM
    • #3
    • 3rd Mar 18, 8:55 AM
    A SIPP is the right product. I'd go 100% equities. Probably in a tracker fund (or a few).

    The amount she needs to put away depends on the type of retirement she wants, and what other income she may have during retirement. Avoiding the higher rate of tax is great, but 4K of contributions is less than 10%. It's too low in my opinion. 20% would be better if she could afford it. Put a lump sum in before 5 April to avoid 40% tax. Make regular payments thereafter if income is steady.
    • atush
    • By atush 3rd Mar 18, 8:58 AM
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    atush
    • #4
    • 3rd Mar 18, 8:58 AM
    • #4
    • 3rd Mar 18, 8:58 AM
    She can set up a Sipp online at Hargreeves Lansdown (HL) or by going to Cavendish online- which has a number of different pension companies.

    She could look to initially pay in her income over the HRT threshhold less BRT (ie if 5 K over pay in 4K and the provider gets the extra 1K from Hmrc). Then she contacts Hmrc herself to get back the extra HRT paid. This can be done by phone, or thru her self assessment. The provider wont do the Hrt for you.

    But if this is her first pension, then she is way behind so should probably pay more in if she can evern if it gets only BRT relief.

    Things change if she isnt self employed, but has a limited company.
    • Dazed and confused
    • By Dazed and confused 3rd Mar 18, 9:00 AM
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    Dazed and confused
    • #5
    • 3rd Mar 18, 9:00 AM
    • #5
    • 3rd Mar 18, 9:00 AM
    I don't think she can claim anything back from HMRC via a telephone call, it has to be done via her self assessment tax return.

    Assuming the op has not missed some vital info such as she's employed as well as being self employed.
    • NeilDS
    • By NeilDS 3rd Mar 18, 9:18 AM
    • 2 Posts
    • 1 Thanks
    NeilDS
    • #6
    • 3rd Mar 18, 9:18 AM
    • #6
    • 3rd Mar 18, 9:18 AM
    Thanks for your help. I worked as an Accountant in industry, including operating an auto-enrolment pension scheme. I am no pension expert, but I have a pretty good basic understanding of employed schemes. Still coming to terms doing the self employed accounts though!. The 40% band kicks in at 45k , so if she earns 8k over we would only need to pay in 6.4k then to avoid the 40% tax band for this year? Next year I will try to get her to make monthly contributions too.

    As I have said, I do find this unnecessarily complicated. I do feel sorry for those people with no financial knowlege reading twenty pages of which funds you can invest in , at the only company I could find (L & G).

    The phone call to HMRC was just to find out how the tax works (explained above thanks), as any claim will come through the self assessment accounts.
    Last edited by NeilDS; 03-03-2018 at 9:20 AM.
    • Dazed and confused
    • By Dazed and confused 3rd Mar 18, 9:27 AM
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    Dazed and confused
    • #7
    • 3rd Mar 18, 9:27 AM
    • #7
    • 3rd Mar 18, 9:27 AM
    Aviva popped up on the first page of a Google search (not a recommendation, just an example) and I'm sure with the numbers now being self employed most pension companies will cater for self employed even if just via a SIPP.

    https://www.aviva.co.uk/retirement/shape-my-future/plan-my-future/article/self-employed-your-pension-questions-answered/

    If the main/only consideration is minimising 40% tax then a net payment of 6.4k looks ok but she could get basic rate relief on a larger amount and don't forget her tax position isn't based just on self employed profits but her total taxable income for the year so if she had employment in the year before becoming self employed or savings interest, dividends, rental income etc then that needs to be considered when calculating her total taxable income.
    • kinger101
    • By kinger101 3rd Mar 18, 9:31 AM
    • 4,200 Posts
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    kinger101
    • #8
    • 3rd Mar 18, 9:31 AM
    • #8
    • 3rd Mar 18, 9:31 AM
    Thanks for your help. I worked as an Accountant in industry, including operating an auto-enrolment pension scheme. I am no pension expert, but I have a pretty good basic understanding of employed schemes. Still coming to terms doing the self employed accounts though!. The 40% band kicks in at 45k , so if she earns 8k over we would only need to pay in 6.4k then to avoid the 40% tax band for this year? Next year I will try to get her to make monthly contributions too.

    As I have said, I do find this unnecessarily complicated. I do feel sorry for those people with no financial knowlege reading twenty pages of which funds you can invest in , at the only company I could find (L & G).

    The phone call to HMRC was just to find out how the tax works (explained above thanks), as any claim will come through the self assessment accounts.
    Originally posted by NeilDS
    Yes. She pays in 6400. The SIPP adds the other 1,600 couple of months later. 1,600 is then claimed back from HMRC.
    • Dazed and confused
    • By Dazed and confused 3rd Mar 18, 9:35 AM
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    Dazed and confused
    • #9
    • 3rd Mar 18, 9:35 AM
    • #9
    • 3rd Mar 18, 9:35 AM
    As a self employed person you cannot claim higher rate tax relief in that way from HMRC.

    You benefit by getting a smaller self assessment tax bill, not a refund of higher rate tax relief.

    The overall benefit is the same really but it is wrong to say you contact HMRC and they send you x refund because they don't.
    • Brynsam
    • By Brynsam 3rd Mar 18, 9:39 AM
    • 956 Posts
    • 630 Thanks
    Brynsam
    Sounds as if you need help on both the self-employment and the pensions side of things? If so, try:

    https://www.gov.uk/working-for-yourself
    and
    https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/contract-based-schemes
    https://www.moneyadviceservice.org.uk/en/articles/your-first-pension-the-options

    SIPPS seem to have become the flavour of the month, but look carefully at the charges before making a decision. A simple personal/stakeholder pension may be all that's needed at this stage (your daughter can always change to a SIPP later in her career).
    • dunstonh
    • By dunstonh 3rd Mar 18, 9:40 AM
    • 92,652 Posts
    • 59,974 Thanks
    dunstonh
    The FCA told me Prudential and Aviva do schemes you can join online. I have spoken to a Prudential FA who was very helpful, suggested a stakeholder pension, but you can't do one with them without Financial Advice..
    The FCA should be doing no such thing. Especially when they cant get the info right.

    The problem here is that you are looking at providers who supply the intermediary market. Not the DIY market. Plus, a few of the providers you have mentioned are running rather dated products that independents would not likely use. And if you buy direct from one of these, the cost could actually be more than using an IFA despite there being no fee. IFAs don't take a commission. It is fee-based. Direct providers can still take a commission. So, the annual charges are higher to faciliate the commission. So, there is a breakeven point (often around 4 years) where the IFA option becomes cheaper than the provider option. Plus, the IFA product is likely to be better.

    However, if you looked at the DIY providers instead, you will find them much more cost effective if you get it right.

    There is no difference between self employed pensions and employed pensions. The status hasn't mattered since 2001.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • xylophone
    • By xylophone 3rd Mar 18, 1:43 PM
    • 25,374 Posts
    • 14,970 Thanks
    xylophone
    https://www.taxcafe.co.uk/pensionmagic.html

    may be worth a read.

    https://www.pensionbee.com/guides/download-self-employed-guide

    https://www.cavendishonline.co.uk/pensions/

    http://www.hl.co.uk/pensions

    http://monevator.com/using-vanguard-lifestrategy-funds-life/
    • LauraAWater1987
    • By LauraAWater1987 14th Mar 18, 2:28 PM
    • 1 Posts
    • 0 Thanks
    LauraAWater1987
    Hi!
    I!!!8217;m intrigued if anyone has any other points that could help me.

    Im in a simar situation to your daughter NeilDS, I!!!8217;m 30 and have become self employed within the last 2 Years. Now my business is doing well, I!!!8217;d like to start focusing on where my pension should be.
    Unfortunately, previous to this, no job I had before paid any pension for me so I!!!8217;m starting from scratch.

    Does anyone have any suggestion to which pension companies I should look into?
    I!!!8217;ve heard NEST, though apparently I can!!!8217;t use them as I have employees. Nutmeg caught my eye, but have different packages/fees.

    What fees should be right?

    I!!!8217;m completely new to this pension world so any advice would be greatly appreciated!
    • dunstonh
    • By dunstonh 14th Mar 18, 2:56 PM
    • 92,652 Posts
    • 59,974 Thanks
    dunstonh
    ve heard NEST, though apparently I can!!!8217;t use them as I have employees.
    You would really only use Nest if you have employees. Not if its just you and you are self employed.

    Nutmeg caught my eye, but have different packages/fees.
    And is not very good.

    Are you looking to take out a pension just to tick a box are do you want to do it right?

    Are you self employed or a company director?
    Do you have employees?
    How much is involved (amounts can sway where to look)
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • xylophone
    • By xylophone 14th Mar 18, 4:26 PM
    • 25,374 Posts
    • 14,970 Thanks
    xylophone
    Have you read through the links in post 12 above?

    You could take advice from an Independent Financial Adviser


    https://directory.moneyadviceservice.org.uk/en
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