Pension question please

[Mollyeyes]

Hello

I am not working at the moment but have some previous company pensions. Hope to find work later this year.

Shall I start a personal pension and contribute and if so please recommend. I don’t want to manage it, just something straightforward but good.

Shall I just save and when I start work I will have company pension and then too it up?

Or shall I do both above?

Thanks

• Top company pension when I start work

If you do not have an earned income this tax year (April 6th 2020 to April 5th 2021) then you can only put in £2880 of your money into a pension and get tax relief on that contribution (which makes it £3600 gross).

You could look at low cost SIPP providers but you would need to choose the fund(s) but that can be quite easy to do, following the general principle of keeping costs low and being globally diversified.
Look at funds such as Vanguard LifeStrategy, BlackRock Consensus, BlackRock MyMap.

Do you have a Stocks & Shares ISA which you have put quite a lot in to already? Whilst that does not get tax relief on your contributions to it, it is more accessible and it is tax free growth, no tax on withdrawal. So it is useful as a pot of money for accessing prior to pension age.

@nannynick thank you. So is there a limit on how much you can put into SIPP?
Can I have one as well as a company pension in future?
I have a pension with Scottish Widows, is it best to pay X per month into that or lump sum rather than set up a separate SIPP?

I don’t have stock and shares ISA, is that better than putting into a pension?

Thanks

Yes a SIPP is a type of pension wrapper so if you do not have an earned income you can only put in £2880 per year and get tax relief on that.

If you have earned income you can put in that earned income up to £40,000 per year. This is called the Annual Allowance. There is also a Lifetime Allowance to be aware of if you are putting a lot towards pensions.

You can have a SIPP and a company pension scheme.

Hard to know if one scheme is better than another, you need to look at the fees, investment fund choices.

S&S ISA is different to a pension. Neither is better than the other, they are different. Both are a type of wrapper which protects the money from taxation to varying extent.

Pension gets tax relief, so more goes in to grow but taking it out is restricted and taxable.

S&S ISA does not get tax relief but is accessible whenever you decide to use it and it is not taxable.

See if this podcast/video helps in understanding the different types of wrapper around investments.
meaningfulmoney.tv/2020/11/18/the-ultimate-guide-to-investing-part-2/

@nannynick thank you so much. Does it matter how much you earn when you mention you can put in up to 40,000 a year into SIPP?
Also why is it so low when not earning?

Can you recommend a good company for SIPP, thank you!

It is all about the tax relief that you get on pension contributions.
www.moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions

It really does depend on how much you earn. If you have no earned income, then you get a small amount you are allowed to pay in... even children can do it. I have no idea why that is allowed but it is and it can be useful to use that during periods of time when there is no earned income, if affordable.

Personally I use Vanguard for a SIPP as it is low cost and I like using their funds. There are many SIPP providers, Monevator has a good comparison table: monevator.com/compare-uk-cheapest-online-brokers/

@nannynick thank you, I have no idea what funds to invest in. I am in mid 50s

You can actually pay in as much as you like to a pension even if you are not earning. However, you will only get tax relief on up to £2,880 net if you have no earnings, or on up to 100% of your net relevant earnings if you do have some income. Putting in more than the £40,000 annual allowance is possible but will incur a tax penalty. These figures include contributions from all sources (ie employer/employee/third party).

@Mollyeyes How much are you looking at putting in this financial year (which ends 5th April)? Sunseed raises a good point that you can pay more in but it becomes a little more complicated as you need to make sure the pension provider does not claim the tax relief on the portion of what you pay in above the amount on which you are eligible to receive tax relief. Personally I can not see why you would pay more in than you get tax relief on, unless you had filled up other tax efficient savings buckets... such as ISA.

Using ISA allowance this year may help get started on that and you have mentioned that you hope to find work later this year so you may have much more earned income for 2021/22 tax year and can therefore get tax relief on a higher contribution to pension at that time.

You can learn about what funds to invest in, there are books, podcasts, videos. You want to consider your appetite for risk, timescale of the investment, being diversified across different asset types and diversified globally.

Some books:
The Meaningful Money Handbook
The Simple Path To Wealth
Investing Demystified
The Financial Wellbeing Book
Reset: How to Restart Your Life and Get F.U. Money

No book will say to buy X fund... they instead teach you about looking at your attitude to risk, building on a firm financial foundation, protecting your wealth and helping you understand how investing works.