Starting a SIPP at 59?

NoviceInvestor_3

I have a relative aged 59 who has recently come into approx 60k. They are planning to contine working for another 5/6 years as they have not made any significant pension provision.

Is there any benefit to be achieved by them opening a SIPP and gaining the tax benefit?

As their annual income is approx 20k they will have to invest it over the next three years (due to investment being capped to their annual salary).

Ignoring any growth over the three years, the 60k investment would be grossed up to 77k.

The plan could be to cash in the 25% in 3/4 years, and then to purchase an annuity with the remainder of the fund in 5 years.

Does this seem sensible, or is there a better option?

dunstonh

Is there any benefit to be achieved by them opening a SIPP and gaining the tax benefit?

Depends on their personal circumstances.

Does this seem sensible, or is there a better option?

Depends on their personal circumstances (argh, broken record).

Tax relief going in, taxed income coming out. Depending on other pensions already held and state pension entitlement, then investing enough in a pension to utilise the remaining personal allowance and 10% income tax band would make sense. However, once that is done, the remaining amount to invest would be better off in an ISA. 6 years x 7 = 42k so the bulk of it could be fed in there. There are fund supermarkets that will take the whole investment in unit trusts/oeics and feed 7k p.a. into an ISA with no cost, initial charges or bid offer spread.

Whilst the ISA doesnt get tax relief going in, it doesnt suffer tax on the other end either.

Final note is that unless the person is earning 77k, they will not be able to pay that amount into a pension in one hit and get full tax relief. Without tax relief it really would be a waste of money going into a pension.

Oh, another final note purchase life annuities have better terms than pension annuities so that is another reason not to do pensions when the income will be above personal allowances.