Stakeholder Pension (with salary sacrifice) vs SIPP for extra cash

Monday3

Hi

I am currently paying into a stakeholder pension (Standard Life). My empolyer currently contributes 8% of my salary and I am allowed to contribute using salary sacrifice (so getting the NI benfits). All told this equates to about £400 a month going into the pot.

While I am aware stakeholder pensions are probably not the best pension product, in order to get the salary sacrifice and employer contribution benefits I believe I have to use the stakeholder my company has provided.

That said I am soon to have an additional £250 a month to invest for my pension and I am unsure as to wether it would be better to invest the money in a SIPP or just increase my contributions to my stakeholder.

I believe a SIPP will give me better range of funds to invest in but if I pay my money into a SIPP then I am going to miss out on what is free money from the salary sacrifice (as I will have to pay NI on the income before I can invest it).

So I was wandering generally what do people think, is it best to invest in slightly poorer funds in the stakeholder but benefit from the salary sacrfice or should I just take the hit on the NI and invest the additional money through a Sipp?

Any thoughts would be much appreciated.

Regards

dunstonh

Why not just pay your £250 into the SIPP and leave the existing contribution amounts in the works scheme?

Loughton_Monkey

^^ fully endorsed.

Personally, I would be looking hard at the costs of a SIPP compared to the Standard Life Stakeholder. It would be a pity to put money into SIPP funds that were pretty similar. But please understand that to blow 100% employer contribution plus NI and expect this to be 'compensated for' by 'better' performing funds in the SIPP is pie in the sky.

So pay what you need into the Stakeholder in order to get the full 8%, and put the balance into something else. It doesn't have to be a SIPP. Another personal pension plan might be better. I may be wrong, but I envisage ocer 90% of thise buying SIPPs do so because of the 'marketing', and fail to invest in any of the additional vehicles they allow (over and above a normal pension arrangement). But each to their own.

Monday3

Thanks for your comments.

My current contributions are structured to match my empolyers. So if I increased them then I would get no additional contribution other than the fact I would benefit from the NI from the salary sacrifice.

With regards to SIPP vs a normal personal pension, I was proposing to go with SIPP as this is what Alliance Trust offer and I currently use them for my Stocks & Shares ISA but I will have a look into other personal pensions (I am not an expert investor by any means but I have a basic resonable knowledge). Are there any providers you would recommend?

Regards

jem16

Monday3 wrote: »

I believe a SIPP will give me better range of funds to invest in but if I pay my money into a SIPP then I am going to miss out on what is free money from the salary sacrifice (as I will have to pay NI on the income before I can invest it).

Will you definitely get the advantage of the salary sacrifice on that extra £250?

So I was wandering generally what do people think, is it best to invest in slightly poorer funds in the stakeholder but benefit from the salary sacrfice or should I just take the hit on the NI and invest the additional money through a Sipp?

Does the salary sacrifice just save on your own NI contributions or do you also get some of the employer's savings?

One possibility is to see if the employer's scheme would allow a part transfer out of it every so often thus allowing you to take full advantage of the NI saving on the extra £250.

jamesd

Ask about transferring money from your work stakeholder pension to another pension from time to time. This could get you and your employer the benefit of the salary sacrifice without limiting your investment options long term.

If you're a higher rate tax payer and the £250 is from higher rate income with no basic rate part and no employer NI contribution it's only saving you 2%, but saves your employer 13.8%. That's a stronger incentive for your employer than you...

If it's basic rate money or there's some employer NI saving sharing then the NI benefit is substantially greater.