SIPP: which % of my earnings?

max11

Hello Everyone.

I would be really grateful if you could give me your opinion about which % of my earnings is appropriate to invest in a SIPP.

I am 30yo, I am a self employed and earned about £110k. NHS kept £7,5k as superannuation.
(So i reckon I can pay up to £12,5k into the SIPP. is that correct?)

I know I do not have access to them until I will be 55yo. I may need some money to set up a practice, but not before at least 2-3 years.

In addition, to make things more complicate I am Italian, what is going to happen if I move back?
I tried to find out on the interent about transfer, etc. but sorry was not able!

thank you a lot
max11

PS: let me know if you need any other details!

DiggerUK

max11 wrote: »

.....I know I do not have access to them until I will be 55yo. I may need some money to set up a practice, but not before at least 2-3 years....

Best to go S&S ISA then. Also gives you total access at all times to what is your money anyway. Far more flexible than any type of private pension, including SIPP's.

Best of fortune.

dunstonh

So i reckon I can pay up to £12,5k into the SIPP. is that correct?

not sure where you get £12,500 from as an amount you can pay. If you want tax relief on your whole contribution you can go up to £110k in total.

In addition, to make things more complicate I am Italian, what is going to happen if I move back?

Who knows? You have 30 odd years before we get there. You will either transfer it or keep it in the UK. We could be in the Euro by then and it wont matter from a currency point of view. Or you can have it paid to to a UK bank account.

max11

dunstonh wrote: »

not sure where you get £12,500 from as an amount you can pay. If you want tax relief on your whole contribution you can go up to £110k in total.

yes my mistake, I thought the limit was £20,000 but it is not correct.

I understand it is not an easy question, but generally speaking, is there any thumb rule? which %?!
I pay already about 7% into the NHS pension.

thank you

max11

DiggerUK wrote: »

Best to go S&S ISA then. Also gives you total access at all times to what is your money anyway. Far more flexible than any type of private pension, including SIPP's.

Best of fortune.

I used the ISA allowance already

DiggerUK

max11 wrote: »

I used the ISA allowance already

Check out NSI Index Linked. Sold as 3 and 5 year bonds. If you do need to cash in early the penalties are not too onerous. Need to hold for minimum of 1 year. Tax free.

http://www.nsandi.com/products/ilsc


New year for ISA's as and from Tuesday.

max11

Thank you.
So why do you advise against a SIPP? because I may need the money?
but what if I invest not a big sum into the SIPP, considerning also that in the next year I should earn about £125k?

thanks no more questions!

DiggerUK

max11 wrote: »

So why do you advise against a SIPP?

My view on personal pensions is that they are the worst way to invest for retirement.
Main objection being that once invested you are stuck with losing access to your money till you retire. SIPPS are the best of a bad bunch if that is the road you want to travel.

Unless anyone has access to a final salary pension, pensions are best walked away from. Plenty of alternatives that leave you in total control.

Aegis

DiggerUK wrote: »

My view on personal pensions is that they are the worst way to invest for retirement.
Main objection being that once invested you are stuck with losing access to your money till you retire. SIPPS are the best of a bad bunch if that is the road you want to travel.

Unless anyone has access to a final salary pension, pensions are best walked away from. Plenty of alternatives that leave you in total control.

Of course, as usual, this is factually incorrect. Someone with earnings of £125k has a lot to gain from using a SIPP or another form of pension. Contributions are available at full tax relief at that level of income, so paying in £10,000 gross costs £6,000. The money within the pension is then exempt from income tax (where applicable, though dividend tax credits are non-reclaimable) and capital gains tax until drawdown, whereupon 25% of the fund is available tax free and the rest is taxed at normal income levels. Someone who is a higher rate taxpayer now may well not be later in life, so assuming no growth at all and all income taxed at basic rate (i.e. personal allowance used by something else), the output would be £2,500 tax free and £7,500 paying income taxed at 20%. Assuming 75% of the pot is used prior to death, that gives a total drawdown after tax of £7,000 at a cost of £6,000, plus £1,875 left in the pension to pass on to beneficiaries after a tax charge.

What other wrapper can achieve that sort of return with zero growth on the underlying investments?

For a higher rate taxpayer likely to become a lower rate taxpayer in retirement, pensions are a no-brainer for money that you are specifically saving for retirement.

On top of these benefits, company pensions can offer contributions free of income tax AND National Insurance (an additional 1% marginal tax for higher rate taxpayers and 11% for most basic rate taxpayers) with employer contributions added on top of that, often matching or bettering your own contributions.

Encouraging people to dismiss these plans without even looking at whether they would be better off with or without a pension is just plain wrong.

shuze

Aegis wrote: »

Of course, as usual, this is completely factually incorrect. Someone with earnings of £125k has a lot to gain from using a SIPP or another form of pension. Contributions are available at full tax relief at that level of income, so paying in £10,000 gross costs £6,000. The money within the pension is then exempt from income tax (where applicable, though dividend tax credits are non-reclaimable) and capital gains tax until drawdown, whereupon 25% of the fund is available tax free and the rest is taxed at normal income levels. Someone who is a higher rate taxpayer now may well not be later in life, so assuming no growth at all and all income taxed at basic rate (i.e. personal allowance used by something else), the output would be £2,500 tax free and £7,500 paying income taxed at 20%. Assuming 75% of the pot is used prior to death, that gives a total drawdown after tax of £7,000 at a cost of £6,000, plus £1,875 left in the pension to pass on to beneficiaries after a tax charge.

What other wrapper can achieve that sort of return with zero growth on the underlying investments?

For a higher rate taxpayer likely to become a lower rate taxpayer in retirement, pensions are a no-brainer for money that you are specifically saving for retirement.

On top of these benefits, company pensions can offer contributions free of income tax AND National Insurance (an additional 1% marginal tax for higher rate taxpayers and 11% for most basic rate taxpayers) with employer contributions added on top of that, often matching or bettering your own contributions.

Encouraging people to dismiss these plans without even looking at whether they would be better off with or without a pension is just plain wrong.

You beat me to it, and expressed it far better than I could!

SIPPs are a no-brainer for many high rate taxpayers.

max11

Aegis wrote: »

Someone who is a higher rate taxpayer now may well not be later in life, so assuming no growth at all and all income taxed at basic rate (i.e. personal allowance used by something else), the output would be £2,500 tax free and £7,500 paying income taxed at 20%. Assuming 75% of the pot is used prior to death, that gives a total drawdown after tax of £7,000 at a cost of £6,000, plus £1,875 left in the pension to pass on to beneficiaries after a tax charge.

thanks for your opinion that I quite agree with.
just a clarification, when that taxation you are talking about is going to happen?

is there any taxation on the eventual value increase over the years? I suppose no!

I repropose the question, even if I understand it is not an easy one. Generally speaking, is there any thumb rule? which %?!
just the money I do not need?