YOU CAN’T PAY INTO A SIPP IF YOU HAVE WORKPLACE PENSION

Unlike an ISA you can pay into more than one pension in each tax year. With an ISA you cannot pay into two of the same type. Lots of people will have been auto-enrolled into their company workplace pension but might want to put some extra money away in their SIPP (self-invested personal pension) – and there are no restrictions on doing this.

The only thing you need to be aware of are the annual limits on what you can contribute to a pension – which is for all pensions you have, rather than per pension. For most people that annual allowance will be £60,000, but you also can’t put more into your pension than you earned in any year – so if your earnings are lower, your annual limit will be too.

YOU CAN’T HOLD PENSIONS WITH MORE THAN ONE COMPANY

People with more than one job might find that they are eligible to join more than one company’s workplace pension scheme – and there are no problems with that. If you have more than one job each of your employers will check if you’re eligible to join the company pension scheme – but will base it on your earnings with that job, not on all your earnings.

If you didn’t want to contribute to two company pension schemes at once you could choose to opt out of one of them. If you do that it’s worth considering whether you’re giving up employer matching, which could be valuable. Also, you should think about whether you want to increase the contributions you’re making to the remaining pension scheme – to compensate for not paying into the other scheme.

YOU CAN’T PAY INTO A PENSION IF YOU’VE ALREADY WITHDRAWN MONEY FROM IT

You might think that once you’ve accessed your pension and taken a payment from it – whether that’s a lump sum or a regular income – that you can’t pay into a pension anymore. But that’s not the case. If you’ve accessed your pension you might have a lower annual limit that you can pay into the pension – catchily called the Money Purchase Annual Allowance.

It means that you can only pay up to £10,000 a year into your pension – including tax relief and any employer contributions. And if you’ve only taken your 25% tax-free lump sum then you can continue to have your full annual allowance.

You also need to remember the income rule from earlier – you have to have earned enough in a year to equal your pension contribution. There is a little loophole on this though, as if you don’t earn anything you can still pay up to £2,880 a year into a pension, which will get topped up with Government tax relief to make a total contribution of £3,600.

SOMEONE ELSE CAN’T PAY MONEY INTO YOUR PENSION

As well as your own pension, you can also contribute to the pension of family (or even friends). This can be a good way of using up a spouse’s pension allowance or of gifting money to children or grandchildren to be tucked away for the long term.

You can only contribute up to 100% of the individual’s earnings into the pension (up to the £60,000 limit that everyone has) or you can pay in the £3,600 that non-earners can have in their pension. Whatever the contribution, the pension holder is eligible for tax relief on the contribution (claimed through their self-assessment tax return if a higher or additional rate taxpayer). If you’re gifting money to someone other than your spouse you just need to bear in mind the inheritance tax gifting rules. 

I CAN’T GET A PENSION BECAUSE I’M SELF EMPLOYED

If you’re self-employed you won’t have the benefit of an employer setting up a pension scheme for you and making contributions, but you can still pay into a pension. You can set up a personal pension or a SIPP and make contributions to it. You pension provider will claim basic-rate tax relief from the Government on your behalf, and then if you’re a higher or additional rate taxpayer you could reclaim more tax relief through your tax return. You could also consider using a Lifetime ISA for your pension saving, have a look at the pros and cons here.

MY PENSION WILL DIE WITH ME

It depends what type of pension you have as to what happens to it on death. A defined benefit pension may pay out a continuing pension or a lump sum to your beneficiaries or it might cease on your death. The same is true if you’d used your defined contribution pension to buy an annuity. With both you need to check the details of the scheme to see whether it will carry on paying out after death.

With a defined contribution pension (like a SIPP) the pot of money remains and will be allocated to your beneficiaries – so you don’t need to worry about it vanishing when you die. There are different tax charges on the pot depending on how old you are when you die, whether you’ve already accessed the pension, and also on how your beneficiaries take the money from the pension – either as a lump sum or as an income. The benefit of pensions is that they don’t count as part of your estate for inheritance tax purposes.

YOU CANNOT SELL ANY INVESTMENTS UNTIL YOU’VE REACHED RETIREMENT

Whether you have a workplace pension or a SIPP you can buy and sell investments throughout your life. With a workplace pension you are likely to have more limited options, but you can switch between different funds and investment options within the pension scheme. With a SIPP you’ll have far more investment options open to you and you can buy and sell investments whenever you want. When you buy and sell you’re not withdrawing money from the pension – it still remains in the pension tax-efficient wrapper.

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