Pension tax advice

JohnnyJet

I have a LGPS which I am planning to leave until I am 67, but I would like to retire at 60. Is there any point getting another Pension, for example a SIPP, or would it be better to put any additional money into an S&S ISA?
My thinking is that currently I would be taxed on my pension income if it is over £10,000 but in an ISA I would not.

jem16

JohnnyJet wrote: »

I have a LGPS which I am planning to leave until I am 67, but I would like to retire at 60. Is there any point getting another Pension, for example a SIPP, or would it be better to put any additional money into an S&S ISA?
My thinking is that currently I would be taxed on my pension income if it is over £10,000 but in an ISA I would not.

You're correct about the tax situation. However if you're retiring at age 60 but not claiming it till age 67 then you would have no taxable income for those 7 years and not utilising your £10k allowance.

The SIPP or PP seems to be the best option in this case as you would get the tax relief and be able to take out a tax free amount each year plus £10k tax free.

Linton

Yes to a SIPP or other pension. If you are a higher rate tax payer yes,yes.

This is especially true if you can arrange to be a non-tax payer from 60-67 (which I assume is your State Pension Age).

JohnnyJet

Sadly I'm not a higher rate tax payer and don't think I ever will be.

My plan is to get to a point where I have enough savings to retire. My current estimate would be between 55-60, but I want the flexibility to continue working if at that point I want to.
I would want to fund the gap before retirement age with a minimum of £15,000 per annum. So would that be better to to be in a SIPP rather than an ISA? Can I take out up to 25% tax free a year and would it be better to run this down before I draw my LGP to avoid tax? Any surplus could be put into an ISA?

At what age can I access a SIPP?

jem16

JohnnyJet wrote: »

minimum of £15,000 per annum. So would that be better to to be in a SIPP rather than an ISA?

If you wanted £15kpa, then £3750 would be tax-free. The remaining £11,250 would be subject to tax but if you have no other income at that point then the first £10k would also be tax-free and the remaining £1,250 subject to 20% tax.

Can I take out up to 25% tax free a year and would it be better to run this down before I draw my LGP to avoid tax?

As above, yes.

Any surplus could be put into an ISA?

Yes but you do still get a benefit from using a pension in that you will always get 25% tax free so it is better than an ISA anyway.

At what age can I access a SIPP?

At the moment it's still age 55. However the plan is to change that to 10 years before state retirement age but I'm not sure from when.

What age are you now?

JohnnyJet

I'm 45, so have time to plan, but wanted to get the structure right now. I don't want to be dictated to by the government when they say that I can retire. Based on the information I have been given I think that I will start a SIPP but also have a few years spending money in an ISA just in case the minimum age for accessing a pension is changed again.

Stupid question but if I have a LGP do I still get access to 25% tax free from my SIPP?

amandajc

I am currently paying as much as I can afford into a SIPP for exactly the reasons mentioned above by jem16 and linton.

Like you I have an LGPS pension due at 66 but I want to retire before 60 and leave it deferred for as long as I can so as to avoid the actuarial reduction. I am currently 55 and a basic rate tax payer. I have planned my income from the SIPP so that I will be below the tax threshold between leaving work and drawing my LGPS. (Don't forget that if you have a S&S ISA you can draw a tax free income from it so this can also be part of your planning.)

If you have a fair way to go to retirement it may be that you do want to split your investment between an ISA and a SIPP so that you have the flexibility of the ISA as regards when you can access the money and to boost your tax-free income but if you are over 55 the SIPP makes much more sense.

Good luck.

jem16

JohnnyJet wrote: »

I'm 45, so have time to plan, but wanted to get the structure right now. I don't want to be dictated to by the government when they say that I can retire. Based on the information I have been given I think that I will start a SIPP but also have a few years spending money in an ISA just in case the minimum age for accessing a pension is changed again.

That would be sensible at your age I think.

Stupid question but if I have a LGP do I still get access to 25% tax free from my SIPP?

Yes. The tax-free element applies to each pension that you have.

JohnnyJet

My household receives Child Tax Credits, if I put money into a SIPP does our CTC go up? Also my wife is self employed, if she also invested in a SIPP would that also increase the credit? If so would she just declare a lower profit taking into account the amount that is put into the SIPP? She has no pension and I am trying to persuade her to start one.

jem16

JohnnyJet wrote: »

My household receives Child Tax Credits, if I put money into a SIPP does our CTC go up?

I believe so but you may get a better answer on the Benefits and Tax Credits board here.

xylophone

My household receives Child Tax Credits, if I put money into a SIPP does our CTC go up? Also my wife is self employed, if she also invested in a SIPP would that also increase the credit? If so would she just declare a lower profit taking into account the amount that is put into the SIPP? She has no pension and I am trying to persuade her to start one.

https://www.gov.uk/workplace-pensions/what-you-your-employer-and-the-government-pay


"Joining a workplace pension scheme means that your take-home income will be reduced. But this may:

mean you’re entitled to tax credits or an increase in the amount of tax credits you get (although this may not affect your tax credits until the next tax year)
mean you’re entitled to an income-related benefit or an increase in the amount of benefit you get
reduce the amount of student loan repayments you need to make"

http://www.entitledto.co.uk/help/tax-credit-pension-contributions

And see https://www.gov.uk/new-state-pension/overview which is relevant to both of you.