SIPP or ISA ?

tali

I already have quite a bit invested in ISAs, should i invest in a SIPP ? it seems to like an ISA - but with the govt throwing in 20% and no access until 55 -if my understanding is correct ?
However , i already have a public sector pension and the impression i got was that i don't need a SIPP -although i can't see why this is relevant really if you can grab another 20% ?
Or have i got it wrong?

CLAPTON

pension give you 20% tax relief when you pay in; however you will pay 20% when you take the pension (except lump sum)

ISAs don't give you 20% when you pay in but provide a tax free income when you take it out

srcandas

tali wrote: »

I already have quite a bit invested in ISAs, should i invest in a SIPP ? it seems to like an ISA - but with the govt throwing in 20% and no access until 55 -if my understanding is correct ?
However , i already have a public sector pension and the impression i got was that i don't need a SIPP -although i can't see why this is relevant really if you can grab another 20% ?
Or have i got it wrong?

Tali two things:

You get 20% tax on the way in but:

You are restricted on extracting it. You can take 25% at any time over 55 but the rest will be paid by one means or another as a pension. That may not be a bad thing but you cannot use the entire SIPP fund to pay for a round the world trip when aged 60 but in a ISA you could.

You are likely to be taxed when you extract the money. For example if you have state pension that equals your personal allowance you will be taxed (as of today) 20% on money taken from the SIPP.

It is a matter of calculating you income when retired. Both for any period between retirement and receiving state pension, and beyond.

If additional pension would push you into higher rate tax then a larger amount in ISA might be sensible. If you aim to live for many years over average and your state and other pensions is not a lot then a SIPP might be good.

Of course it is difficult to see the future so the best solution is often a balanced approach of pension (including SIPPs) and ISAs

HTH :beer:

jem16

tali wrote: »

However , i already have a public sector pension and the impression i got was that i don't need a SIPP -although i can't see why this is relevant really if you can grab another 20% ?
Or have i got it wrong?

I have a Public Sector pension and also have a SIPP. However this is only to gain the benefit of 40% tax relief. If only a basic crate taxpayer there is not so much benefit so it really depends on individual circumstances.

With £20k of secured income from your public sector pension plus your state pension, you could use Flexible Drawdown and give you access to the whole pot as opposed to just 25% of it.

srcandas

CLAPTON wrote: »

pension give you 20% tax relief when you pay in; however you will pay 20% when you take the pension (except lump sum)

ISAs don't give you 20% when you pay in but provide a tax free income when you take it out

Agreed accept if you retire prior to state pension you may be able to extract from a SIPP tax free for a few years

atush

A sipp can be a good thing, even with a PS pension. Esp trying to retire earlier than your scheme age.

But depending on your scheme/rules, it may be better to pay in AVCs, esp where the AVCs can be used to provide your TFLS, instead of decreaing your pension.

CLAPTON

srcandas wrote: »

Agreed accept if you retire prior to state pension you may be able to extract from a SIPP tax free for a few years

oh for perfect information
but in this case the OP told us he had a final salary pension and didn't 'need' a SIPP so one assumed he would be a tax payer already

srcandas

CLAPTON wrote: »

oh for perfect information
but in this case the OP told us he had a final salary pension and didn't 'need' a SIPP so one assumed he would be a tax payer already

Yes you're right. I was thinking of the more general case. Presumably you can't retire early from a final salary pension :beer:

jem16

srcandas wrote: »

Yes you're right. I was thinking of the more general case. Presumably you can't retire early from a final salary pension :beer:

You can retire from age 55 just like any other pension. It may, however, be actuarially reduced.

My normal retirement age from my Teachers' Pension scheme is age 60. I won't get my state pension till age 66. In my case I will still be a taxpayer at age 60 but some may not be.

tali

I don't mind the Sipp restriction till 55 - but i doubt i'll get to the higher rate tax allowance.

mania112

SIPP V ISA is pretty similar from a tax point of view (one is free going in, the other coming out).

The main differences are age and monetary limits.

You can only realise the benefits at age 55 with a Pension.
You can only invest £11,520 in an ISA (for 2013/14).

Costs and Investment choices are quite similar too, ISAs are probably slightly cheaper, on average.

EDIT: The BIG warning that most accompany an ISA - do not withdraw it before retirement if it's their to fund it, it can become too tempting.