Taking a SIPP at 55 while entitled to DB pension at 60

mgdavid

Brogden wrote: »

.........

I do hope this post helps any person who reads it.

It didn't help me - seemed a bit pointless actually.
Is the 'stick out tongue' smiley meant to denote humour?

saucer

Thank you for all the very informative and encouraging replies. Please accept my apologies for any confusion or community friction caused by my ambiguous language! My plan is to start a SIPP from scratch. Before now I have been putting a considerable amount each year into an additional years contract (NHS) and also additional pension contract, also a top up on the NHS pension. This has left me in the fortunate position where I could conceivably end up being HR tax payer in retirement.

On this basis I thought it would make sense to put extra funds into a new SIPP as a tax efficient way of saving now, with a view to going part time in my late 50s, using income from the SIPP to supplement our income until retiring at 60

Thrugelmir wrote: »

Not been changed to Normal Retirement Age ?

In the new NHS scheme the retirement date is indeed based on state retirement age, but the majority of my pension will be protected under the old rules, so I will probably go at 60, taking most of the pension then, and defer the rest (the portion in the new 2015 scheme) at that age e.g. 67.

It might of course work out as more sensible to use the money in the SIPP to bridge that gap, between 60 and SRA. This is something that will depend on how my career is looking further down the line, and whether I continue to be on a high NHS banding, withe the correspondingly responsible and stressful job). ...clearly all very first world problems and decisions. Thanks again for your thoughts

grey_gym_sock

are you in danger of running into the £1m lifetime allowance? if so, contributing to a SIPP is unlikely to make sense.

also, would you expect to be paying 40% on most of the income you draw from the SIPP (or would you get a lot out with only 20% tax, e.g. by drawing after you've cut down work but before drawing your full NHS pension)? because a SIPP is less attractive if you get 40% relief on the way in, and pay 40% tax on the way out. (though there is still some advantage, due to the 25% tax free lump sum.)

an alternative is to pay into S&S ISAs.

saucer

I will be below the lifetime allowance, maybe well below it depending on future service and role changes...but I am currently on a good pay scale, and hope to remain so.

I don't think much of the SIPP would be being taken at 40% tax, but I will look at the numbers again. If I was expecting to be withdrawing from a sipp at 40% do you think it would be more sensible to invest in an ISA?

zagfles

saucer wrote: »

I will be below the lifetime allowance, maybe well below it depending on future service and role changes...but I am currently on a good pay scale, and hope to remain so.

I don't think much of the SIPP would be being taken at 40% tax, but I will look at the numbers again. If I was expecting to be withdrawing from a sipp at 40% do you think it would be more sensible to invest in an ISA?

Not really, because you're still getting 10% tax relief. 40% tax relief on the way in and 30% on the way out, since a quarter of what you take out is tax free.

Of course in a SIPP the money is tied up till you're 55. Plus of course the govt could always change the rules. Watch the March budget. But I think it's unlikely they'd do anything retrospective, eg stop the PCLS on amounts already built up.

grey_gym_sock

yes: to put £100 in a pension costs you £60 now, and you get £70 back after paying 40% tax on 75% of it, so you've increased your money by c. 17%, which is worth having.

though if you can only pay 20% on the way out, then you get £85 back, which is an increase of c. 42%, which is a more dramatic gain.

(for this calculation, you can ignore the investment returns inside the SIPP, because you could get the same returns inside a S&S ISA.)

the main downside of the SIPP is uncertainty about when you'll get access to it. they've said that the minimum age will rise from 55 to 57, and then stay 10 years below SPA. but there's some risk it will rise further. it would be unfortunate to want to retire early - something which can happen for many reasons, regardless of plans - and have enough money to do so, except that you can't access any of it. so it probably makes sense to have something accessible (i.e. in ISAs), in addition to something in a SIPP, even if the SIPP is better for tax-efficiency. (i don't know if you have ISAs already.)

saucer

grey_gym_sock wrote: »

they've said that the minimum age will rise from 55 to 57, and then stay 10 years below SPA. but there's some risk it will rise further. it would be unfortunate to want to retire early - something which can happen for many reasons, regardless of plans - .)

Do you think they are likely to do that retrospectively for SIPPS already started?

grey_gym_sock

saucer wrote: »

Do you think they are likely to do that retrospectively for SIPPS already started?

well, it was increased from 50 to 55, and that applied to SIPPs already started. that is: if you were 50+ and had started drawing from a SIPP, you could continue; but if you were 49 and just missed the cut-off, you had to wait another 5 years to start drawing.

they gave c. 7 years' notice for that change. and there was a bit of criticism saying that that wasn't enough notice.

hopefully they will give more notice, and only put it up 1 or 2 years at a time, in future. but who knows?

saucer

That is definitely worth bearing in mind thanks. It will probably still, on the balance of probabilities, be that a SIPP is the way to go, but I may as suggested split it with something I could access at any time.

zagfles

saucer wrote: »

That is definitely worth bearing in mind thanks. It will probably still, on the balance of probabilities, be that a SIPP is the way to go, but I may as suggested split it with something I could access at any time.

They've already announced the intention to raise the age to 57 in around 2028 and then keep it at 10 years below state pension age.