Non Taxpayer – Can I Pay In To A Pension?Written on January 16, 2017 by Kirk Rice LLP
The Question:
I stopped work 1 year ago after having our first child. My husband works for a large company and has a good Pension Scheme. I do not expect to return to work for at least 5 years and I am concerned that in the meantime I have no Pension for myself. Am I allowed to pay into a Pension bearing in mind I have no income or would an ISA be better?
Mrs A.C.
Kirk Rice LLP answers:
Yes, as a non taxpayer you are allowed to invest into a Pension and one of the main benefits will be that your contribution will qualify for Basic Rate Tax Relief. This is especially appealing when you consider that you are presumably a non taxpayer. There is not surprisingly a limit to the amount you can contribute which is currently £3,600pa gross. The Basic Rate Tax relief would be given at source which means the amount that you would personally need to contribute would be £2,880.
Tax Relief at 20% means £720 would be added immediately to the Pension increasing the contribution to the gross amount of £3,600. It is not often that the tax man gives you tax back, and it is even rarer for him to give you tax back that you have not actually paid. I would suggest that it is well worth taking advantage of, and the only real negative point to be aware of is that you cannot access the Pension until you are age 55. This will be changing to age 57 from 2028. An ISA would be a good alternative to a Pension but they do not qualify for tax relief. To invest £3,600 into an ISA will actually cost you £3,600.
However, the income or withdrawals from an ISA are currently tax free whereas the income from a Pension is taxable, although it is possible to take 25% of your Pension Fund as a Tax Free Lump Sum. The other main points to be aware of are that you can access the ISA at any time and the ISA Allowance means you can invest up to £15,240 for the current tax Year, which is a lot higher than you could currently invest in the Pension. In the future, you could also take the money out of the ISA and use it as a Pension Contribution. Finally, subject to budget, you could consider both?
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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
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