Now that I've opted out, SIPP?

A question about : Now that I've opted out, SIPP?

As I work for five different agencies and earn small amounts from each, I decided to opt out of the one agency ( getting the least work from it) that had auto-enrolled me.

However, I was wondering about putting a large percentage ( perhaps even 100% at times) of my earnings into a SIPP.
But I don't understand the mechanics if it's not organised through an employer. How do I get the tax benefit via the SIPP route in my case?
Ie how would HMRC know that the capital I put in is from earnings and top up the amount I put in? What's to stop people putting more than they earn into a SIPP if they have spare savings over and above earnings?

Best answers:

• Bit silly to have opted-out of the agency pension scheme as you would have had free employer contributions paid in to it. Would have been better to have built up that pension pot and then transferred it to a SIPP at a later date.
  Re tax relief on payments to a SIPP - you get basic rate relief immediately. So, if you wanted to pay Ј100 pm, you only hand over Ј80pm. If you pay higher rate tax, then you tell HMRC about the pension payments you've made at the end of each tax year (on your tax return, if you complete one. Otherwise contact HMRC)
  You can pay whatever you like in to a SIPP. You can pay more than your earnings, if you wish. However, the tax relief is limited to the amount of relief due on 100% of your earned income only, or the Annual Allowance if lower (currenlty Ј50k but reducing to Ј40k in April 2014 - plus unused allowances from the last three tax years, if you qualify).
  In short, there's nothing to stop anyone putting more than their earnings in to any pension - but the tax relief will be limited.
• But free is .... well, free :-)
  If you're paying 1% & the agency is paying 1%, then your money is doubled immediately. I don't see anywhere else where you'd get an instant 100% return every time you make a payment.
  You're not stuck with "accessing the pot at retirement" as you can transfer it - even to a SIPP - before then. Indeed, if you had a number of different pots, you could transfer them all in to a single SIPP just before retirement.
  You could even pay in to a SIPP now - but stay in the agency scheme as well, simply to collect the free employer contributions.
  The auto-enrolment & opt-out/opt-in rules are complex and I'm not sure whether you will now get the employer contributions if you opt-in, having already been in and opted-out ... ! Ask your employer to confirm first.
  I'm fairly sure you do get the employer contributions, but I've only checked the requirements quickly. If you have first opted-in, then opted-out then your employer does not have to allow you to opt-in again, within 12 months of the first opt-in. But this restriction doesn't seem to apply if you were first enrolled by your employer and then opted-out. See .... I said the rules were complex!! :-) So ask your employer and if the answer is "yes" you can opt-in and "yes" you get the employer contributions as well, then all's well.
• Since October 2012, someone opting out of an auto-enrolment scheme is treated the same as an opt-out on an occupational scheme. Many providers will not accept applications from opt-outs without an IFA signing off on it first. An IFA is unlikely to do that as it would almost certainly be a mis-sale.
  DFC has covered the benefits. Nothing stops you having a personal pension and opting in if you want to pay more.
• This is NEST and the total value of 1% of Ј1,000 earned in eight months is just Ј10. It's just not worth creating a pension pot that small that can't be merged into others because of the NEST restrictions.
  Free money sounds nice until you look at just how little the free money is and the limited range of investment options you're locked into if you try to get it.
• What are your other agencies paying into? If any of the others are also paying into NEST then they can all pay into the same NEST account. Even if they do not pay into NEST, you can still consolidate it all when you come to retire anyway.
  I would rather have a higher income from lots of sources than a lower income from one source.
  You can opt-in again to your employers scheme by just writing to them stating that you wish to opt-in. If you email them, you need to include wording along the lines of "I have personally submitted this notice to join a workplace pension scheme".
  You will then join the scheme from the next time you work for them.
  Note that the 1% contributions will increase over time - by 2018 you will be paying 5% and the employer 3% - still a good investment return!
  The contributions are calculated on Qualifying Earnings, which is all earnings over about Ј5,668 p.a. (pro-rated during each month or week that you work for them). As a result, if your earnings are low you might not actually pay any contributions paid - however it is worth joining anyway just in case. You can consolidate all your pensions later on.
  Pal
• I would just like to add that one of the things that worries me about auto-enrolment pensions is that the pensions provider can take it for granted that they will get the money as most people will not opt-out, and the savers can't take their business elsewhere if they are unhappy, so the provider can ramp up the charges and treat the savers like dirt and people will still do it to "get the free money".
  At least with SIPPs the providers are in competition with other so there is an incentive to keep charges down and provide a good service.
• hidden charges are not the same as no charges. hargreaves lansdown do not run a SIPP for free (i should know: i own some shares in HL ).
  you appear to assuming that your SIPP is cheaper because you either haven't understood the charges, or have decided to ignore some of them.
  but it doesn't especially matter which is cheaper. you're throwing away half the money you could have in your pension (viz. the employer contributions). the difference in charges is pretty insignificant compared to that.
  i've haven't transferred a pension myself. from what i've read on here about other ppl's transfers, it can be very slow, but it can be done.