Revisiting the idea of SIPPs

gterr

Hello, and Happy New Year.

I have a S&S ISA and an unwrapped S&S portfolio, totalling about £100k together. I'm shunting the unwrapped money into the ISA as fast as I can. This money is to supplement my otherwise meagre pension provision. I'm 59, won't get my State Pension until I'm 66. I'm semi-retired but still self-employed and will continue self-employment for a few years beyond 2016 in order to improve the value of my state pension (I was contracted out for some years so won't get the "full flat rate" amount).

I've considered SIPPs in the past and decided against them because of the restrictions on drawdown. Now, with the changes in rules, I'm wondering if I should revisit the idea. I'm unclear on a number of issues and would welcome your comments:

I would intend to contribute £2880 per year (the money coming from my unwrapped funds). Presumably I could only do that until the earliest of age 75 or the date that I start to take an income from the SIPP? If I started to take an income from one SIPP could I open a second SIPP and start contributing to that?

I can find info on platforms such as HL and CSD about SIPP charges, but I can't quite see what I would pay when it came to drawing down or withdrawing all the money. My idea would probably be to take sufficient income each year from the SIPP to use up my personal tax allowance, but no more. There must be a point at which the fees associated with running a SIPP and taking an income from it negate the advantages of the tax relief on contributions? Might it be better to consider taking the entire fund out as cash in one go to minimise fees? Is anyone else in a similar position, and if so, which platform have you chosen to host your SIPP?

Many thanks for your time.

gadgetmind

Why *only* £2880 pa? Your self-employed income should let you contribute more, if you choose.

Fees are an unknown right now, but you may find a normal personal pension cheaper for you than a SIPP.

Yes, you can continue to contribute the £2880 pa even after stopping work and starting to drawdown a pension.

saver861

I'm looking into something very similar to what you are doing at the moment.

From my perspective I see SIPPs as a means of investing with the tax benefits but for a full drawdown at whatever point I choose. Whilst you can get an annuity with them, its not a feasible option given the rates, thus why they changed the rules.

As I live on an occupational pension I am limited to the £2880. However if you are still working as self employed and you are earnings are above £2880 you can invest the greater amount at least up to £8,000 at which point you need to re-look if it is over that. - obviously the more you invest the better the tax benefit.

I'm trying to establish the exit fees also, it seems HL is £25 but I'm not sure thats the totality of their exit charges.

saver861

gadgetmind wrote: »

Fees are an unknown right now,

I'm not clear why you say fees are unknown? What fees are unknown? I would want to know the fees before entering any contract for sure. I think HL state all their charges and the fund charges would depend on the funds chosen.

gadgetmind wrote: »

but you may find a normal personal pension cheaper for you than a SIPP.

This is one of the things I'm trying to weigh up. It seems a private pension or a stakeholder with an insurance company might be a cheaper option than a SIPP. I am aware there are less investment options but for those aged 57 upwards, its mainly the tax benefits it brings, especially for non-tax payers.

One insurance company I spoke to says their charges were 0.4% and any fund charges but there was no exit fees etc.

Therefore I'm trying to clarify in my own mind which is the better option, SIPP with an investment company or personal pension with an insurance company.

gadgetmind

saver861 wrote: »

I'm not clear why you say fees are unknown? What fees are unknown?

The fees for flexi-drawdown and UFPLS are unknown as the rules haven't yet been settled and the providers will then take a while to show their hands. Fees for drawdown and flexible drawdown are know, but I expect pricing pressure downwards.

This is one of the things I'm trying to weigh up. It seems a private pension or a stakeholder with an insurance company might be a cheaper option than a SIPP.

Yes, they are simpler and often cheaper, but we don't know which of them will allow flexi-drawdown nor what their fees will be.

dunstonh

In the IFA world, many of the providers have already removed their drawdown charges and are now treating pensions as they would with ISAs and unwrapped.

It is probable that the DIY world will follow.

gterr

gadgetmind wrote: »

Why *only* £2880 pa? Your self-employed income should let you contribute more, if you choose.

Thanks. For s/e income I won't know the total until the end of the tax year, so presumably I would use Year 1's income as the basis for contributions in Year 2? Much of my s/e income comes from Bed and Breakfast and I use the Rent-a-Room scheme in which the first £4250 of income is not taxed (though no other business expenses can be claimed). This is great for tax liability but does also reduce the reported profit (which is presumably what it used as 'earnings' for the purposes of pension contributions). For that reason I'm planning on a contribution level of £2880 per year when trying to work out if SIPP or other pension is worthwhile.

gadgetmind

dunstonh wrote: »

It is probable that the DIY world will follow.

I'd expect a few one-off charges to remain (perhaps for UFPLS) but we should hopefully be rid of fees for entering drawdown, big annual fees, fees for GAD calculations, etc.

Fortunately (or unfortunately) I've got a few years to go yet, so things should have settled down. Or been scrapped, or restricted, or just generally messed around with!

gadgetmind

gterr wrote: »

For that reason I'm planning on a contribution level of £2880 per year when trying to work out if SIPP or other pension is worthwhile.

I'm actually doing the same for my wife. She should be able to go higher than £2880 in year two of employment (she's low paid and doesn't do many hours) but I won't know until then so will do a lump sum in later March to cover any extra.

amandajc

I'm using a SIPP with the intention of funding early retirement before my defined benefit pension is due. I chose Fidelity (platform charges 0.35%) and have had no problems. The web site is very clear and customer service fine.

It will be interesting to see how the charges for flexible draw down pan out but hopefully Fidelity will be competitive.

dunstonh

I'd expect a few one-off charges to remain (perhaps for UFPLS) but we should hopefully be rid of fees for entering drawdown, big annual fees, fees for GAD calculations, etc.

I suspect the DIY market may be more prone to people using the pension provider to attempt full fund withdrawal than the intermediary market. So, you may be right. Otherwise providers risk getting lots of pension transfers in with people drawing all the money out within days.