A SIPP as 'insurance'

triplea35

Hi
Just wondering what anyones thoughts are on this.


I am 58 and have already retired from one job with a reasonable final salary pension.


I now work self employed, with both pension and current work I am still a standard rate tax payer.


I opened a SIPP a few years ago and have put a few thousand in each year. Yesterday, a bit on impulse before the deadline, I put a further 10k in which will generate a further 2.5k from the HMRC.


Why I did it is I seem to have quite a bit of spare cash, many fixed term investments are ending and current rates are pathetic.


My thoughts are that I am getting a massive incentive from the Gov, and I will continue to invest in shares which have done quite well and with good dividends.


My intentions are that I will only ever draw out of the SIPP as a last resort. I have other easily accessible funds in ISA's etc. In any event I could always get 25% out tax free if needed. My intention is to hopefully just leave it in the SIPP as an 'insurance/inheritance' for my spouse if anything happens to me as I understand she will get it tax free.


Am I correct? Is this a sensible way to 'use' a SIPP?

saver861

triplea35 wrote: »

Hi

I now work self employed, with both pension and current work I am still a standard rate tax payer.


I opened a SIPP a few years ago and have put a few thousand in each year. Yesterday, a bit on impulse before the deadline, I put a further 10k in which will generate a further 2.5k from the HMRC.

Just be aware, which I have no doubt you are, but your pension will not be classed as earned income. So you can only put into the SIPP the equivalent of what you are earning from your self employment.

triplea35 wrote: »

Am I correct? Is this a sensible way to 'use' a SIPP?

I and my my missus have opened SIPPS but can only pay in £2880 per year. We will pump into it every year until tax rules changes or some other event occurs.

If you don't need it then let it build - as with us, it is there till we need it. In the case of my missus tho, she will need to draw on hers before she gets state pension as that will take her over the PA threshold.

So effectively, its down to rule changes and tax situations as to the best advantages of use.

kidmugsy

triplea35 wrote: »

My thoughts are that I am getting a massive incentive from the Gov, and I will continue to invest in shares which have done quite well and with good dividends.

... My intention is to hopefully just leave it in the SIPP as an 'insurance/inheritance' for my spouse if anything happens to me as I understand she will get it tax free.


Am I correct? Is this a sensible way to 'use' a SIPP?

Seems sensible to me. But I would say that because I'm doing it too.

jamesd

triplea35 wrote: »

Is this a sensible way to 'use' a SIPP?

It's a sensible way but not the most productive.

I don't suppose that you started capped drawdown before 6 April 2015? If you had you could take GAD limit income - around 6% of the 75% of the pot- each year and recycle it into more pension contributions, getting tax relief on it again. If you don't have a pot in capped drawdown it's now too late, taking any money out with its replacement flexi-access drawdown will trigger a reduction in your annual personal contribution allowance from £40k to £10k. You can still do this if the drop doesn't bother you.

You can also take the 25% tax free lump sum and within the limits for lump sum recycling use that for more pension contributions, or investments elsewhere not subject to those limits. The easiest to follow limit is no more than £7,500 of lump sum to be taken in every rolling twelve month period. Not tax years, twelve month gaps between lump sums.

So, what you're doing is sensible enough, just with the potential to do a bit better still.

Best to hold off on new basic rate pension contributions until we know how the election goes. A couple of parties have suggested that they want to increase basic rate tax relief on pension calculations. No reason to lock in 20% when you might get more by delaying for a little while.