Thoughts on this plan- Using SIPP instead of ISA

Gadfium

I'm mulling over some thoughts on SIPPs.
I am 45, and have been paying into a BT (Section C) pension since 1999. I have about £85K in funds, equities and cash, mainly in ISAs. I currently contribute 7% of my wage into my pension (I believe that the employer contribution is another 9%). I also invest the max (£450 per month) into my employers Sharesave and SIP schemes. I am taxed at 40%.

I aim to retire somewhere before I am 60, which gives me another 15 years (max). I aim to have £300K in my investment pot by 2025 which is do-able. This will be used to by a property overseas.

I aim to build up my investment pot using trackers wrapped up in ISAs. I have no intention to touch any of these for at least another 10 years. However, thinking of the recent changes in pension law, would I be better using SIPPs to take advantage of the tax relief? As I understand it I can access all of the money contained in a SIPP from the age of 55?

atush

Yes, you can access a Sipp from age 55 currently (it will go up to 10 years before SRA in the future ie 2028). Only 25% is tax free, the rest will be taxed as income in the year you take it, so best to take it at a rate that minimizes tax paid.

In your case, it would be most wise to put enough in to take you out of HRTax completely.

As for spending 100% of your investment money on a single property I would not recommend. Better to spend less and have a larger fund to live off/for emergencies, repatriation can be expensive.

madeinireland_2

I agree with atush I wouldn't touch property - especially overseas - you could be successful with it but way too risky for my liking and why take risks when you don't need to.

Why don't you up your Bt pension contribution as I believe that will invoke further contribution from bt.

Also don't forget the benefit of NI savings by contributing more through the bt pension as AVC's or further contributions.

Contribution into AVC's through the bt scheme should enable you to take all your additionals contributions tax free - you do need to be aware of the limits.

The SIPP is a good route if you want to make further tax savings and have already reached the AVC limit - you miss out on NI savings and can only take 25% tax free but it does enable you to start using from 55 as opposed to taking at the same time as your bt pension.

madeinireland_2

Cancel my comment about bt putting in further contribution as I was thinking of the new defined contribution scheme.

All other points are valid and the extra contributions should bt done as AVC's

Gadfium

Thanks for the replies, I really appreciate you taking the time to answer.

My aim is to live permanently overseas...it's not an investment, but will be my place of residence. I will not be using all my investment pot as I have a UK property to either rent or sell.

atush wrote: »

In your case, it would be most wise to put enough in to take you out of HRTax completely.

Would you mind explaining this further? Do you mean to contribute so much to a pension that I would drop into BRT? If so, then that isn't really feasible as I would have to make contributions in excess of £25k per annum, which I cannot afford to do.

Gadfium

The thing that puts me of using AVCs via my pension scheme is the very limited choice of funds:

• LGIM UK Equity Index Fund
• LGIM Global Equity Index Fund
• Standard Life With-Profits Fund
• Standard Life Deposit and Treasury Pension Fund

atush

Gadfium wrote: »

Thanks for the replies, I really appreciate you taking the time to answer.

My aim is to live permanently overseas...it's not an investment, but will be my place of residence. I will not be using all my investment pot as I have a UK property to either rent or sell.




Would you mind explaining this further? Do you mean to contribute so much to a pension that I would drop into BRT? If so, then that isn't really feasible as I would have to make contributions in excess of £25k per annum, which I cannot afford to do.

Sure you can afford it, you could use some of your savings, you could cut back on spending, you could get a spouse/partner back to work?

xylophone

http://www.btpensions.net/22/what-you-pay

http://www.btpensions.net/97/what-are-avcs

http://www.btpensions.net/64

You could contribute to AVC scheme and transfer to SIPP ?

http://www.wealthatwork.co.uk/bt/wp-content/uploads/sites/8/BT-PFRGoT-website-slides_irw_041013-v14.pdf (but not updated for budget 2014 changes).

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/391615/state-pension-changes-4.pdf re state pension.

dunroving

Gadfium wrote: »

Thanks for the replies, I really appreciate you taking the time to answer.

My aim is to live permanently overseas...it's not an investment, but will be my place of residence. I will not be using all my investment pot as I have a UK property to either rent or sell.




Would you mind explaining this further? Do you mean to contribute so much to a pension that I would drop into BRT? If so, then that isn't really feasible as I would have to make contributions in excess of £25k per annum, which I cannot afford to do.

atush wrote: »

Sure you can afford it, you could use some of your savings, you could cut back on spending, you could get a spouse/partner back to work?

+1.

I think maybe the subtleties of this sort of arrangement are lost on a lot of people - I took a long time to realise this false logic myself ("I can't afford to avoid 40% tax by putting salary into a SIPP").

OP: If you can only "afford" to put, say, £20k of your higher-rate earnings into a SIPP, why not put the £25k into a SIPP and make up the £5k (actually, it would only have been £3k net of income tax) by drawing from the £85k you have in ISAs?

Gadfium

atush wrote: »

Sure you can afford it, you could use some of your savings

Whats the advantage of taking money out of savings and putting them into AVCs? The tax-efficient "contribution"?

atush wrote: »

you could cut back on spending,

I'm as committed as I can be until the end of this calendar year. I'll have paid off a small mortgage and that will release £12K per annum to put into investments.

atush wrote: »

you could get a spouse/partner back to work?

Not applicable in my case.

atush

I'll have paid off a small mortgage and that will release £12K per annum to put into investments.

Paying off a mtg instead of putting money in pension when you pay HRT is just, well, silly.

Every 100 into a pension costs you only 60.

Go back and read post 9 if you dont believe me.