Investing more in SIPP vs S&S ISA

jdw2000

Hi all,

Any thoughts on which is better to invest in: my Aegon SIPP, or taking out an S&S ISA. (I've never had an S&S ISA).

Are a SIPP and an S&S ISA essentially the same thing? Both are invested in S&S's of your choice... Difference being that one of them you have to wait till 55 years old to access the cash.


(For context: I'm 40 years old and I currently only have £48K in my pension. I am a homeowner with 45% LTV and I have savings of £45K which are kept in the bank accounts which currently give the best interest).

AnotherJoe

jdw2000 wrote: »

Hi all,

Any thoughts on which is better to invest in: my Aegon SIPP, or taking out an S&S ISA. (I've never had an S&S ISA).

Are a SIPP and an S&S ISA essentially the same thing? Both are invested in S&S's of your choice... Difference being that one of them you have to wait till 55 years old to access the cash.

Yep, you have that right, thats one of the two main differences. The other is the tax bump you get especially if you are a higher rate taxpayer.

Assuming you arent, for every £800 you put in the government will bump it up to £1,000. When you withdraw it, if you have to pay tax on it, 25% will be tax free and you'll pay 20% on the remainder. So you'd get back £850 for every £800 you put in, whereas in a ISA, you put in £800 and take out £800.

You may or may not think that's worth locking your money up for. (Its much more advantageous for a higher rate tax payer)

dunstonh

Any thoughts on which is better to invest in: my Aegon SIPP, or taking out an S&S ISA. (I've never had an S&S ISA).

ISAs and pensions have the same investments and the same charges (caveat that some pensions can offer internal funds cheaper than those available on ISAs. However you are talking SIPP rather than PPP so that is not an issue here). That means there is no difference in the two options other than the tax handling and the maturity process.

Are a SIPP and an S&S ISA essentially the same thing?

No. There are both tax wrappers but they have very distinct diferences.

Difference being that one of them you have to wait till 55 years old to access the cash.

That is one difference. However, there are several others. Pensions get tax relief on contributions. They are not part of your estate. Withdrawals are part liable to income tax. FSCS protection is higher on PPPs but the same as ISAs for SIPPs. Pensions reduce your income which can lead to child benefit being paid or tax credits being paid/increased. ISAs do not. PPPs have access to pension funds as well as UTs/OEICS/ITs etc. Pensions can get employer contributions (bypassing tax and NI). ISAs cannot.

jdw2000

So it sounds like the Aegon SIPP trumps (sorry!) the S&S ISA then.


I do really want to build that up, too. My friend (and his wife) are in the police. Their projected pensions are just sickening to listen to. If I don't build up my pension soon I will spend my retirement years shaking my fist at those !!!!!!s : )

(Just kidding, and fair play to them. But the police do get very well looked after indeed on the pension side of things compared to your average Joe. I know people in their 40s who have no pension at all in the private sector).

dunstonh

So it sounds like the Aegon SIPP trumps (sorry!) the S&S ISA then.

I would say pension trumps ISA. I wouldnt like to say whether SIPP or Aegon does.

I do really want to build that up, too. My friend (and his wife) are in the police. Their projected pensions are just sickening to listen to. If I don't build up my pension soon I will spend my retirement years shaking my fist at those !!!!!!s : )

The police pension is very good. Shame is that most officers dont realise how good. In your case, you are behind but its not scarily behind. However, you do now need to take it seriously. I would be looking for 6 digits in your low 40s ideally.

bowlhead99

If you have little in the way of pension and the money's meeting put away for the long term because the prose is retirement, then yes, a pension is a good way to go.


Yes, members of the police force do a lot of public duty with occasionally life threatening situations for relatively low pay in the grand scheme of things, but have a carrot at the end of it which is being able to get a guaranteed pension which is quite high in relation to their salary.

Those of us who didn't choose that path should probably have been putting a decent proportion of our salaries into a pension plan for twenty years by the time we're 40 if we'd like the same retirements. If we forget to do that and spend all our income rather than bothering about how we'll get through retirement, we'll probably feel a bit sick realising that while we now start to do that, we also have to play catchup for the twenty years of missed contributions and investment growth.

Realising late that you have virtually nothing in the pot is something that can be soul destroying so good on you for addressing it before it gets too bad. You should probably tactfully suggest it to your 40-yr old pals

£30k by 30 and £100k by 40 would be OK targets though the right number is different for everyone. You have over 50% of your house paid off which is another trade off, I'm quite a bit less than you at same age. We'll all want somewhere to live, and an income, and not to work, once we get older.

jdw2000

bowlhead99 wrote: »

If you have little in the way of pension and the money's meeting put away for the long term because the prose is retirement, then yes, a pension is a good way to go.


Yes, members of the police force do a lot of public duty with occasionally life threatening situations for relatively low pay in the grand scheme of things, but have a carrot at the end of it which is being able to get a guaranteed pension which is quite high in relation to their salary.

Those of us who didn't choose that path should probably have been putting a decent proportion of our salaries into a pension plan for twenty years by the time we're 40 if we'd like the same retirements. If we forget to do that and spend all our income rather than bothering about how we'll get through retirement, we'll probably feel a bit sick realising that while we now start to do that, we also have to play catchup for the twenty years of missed contributions and investment growth.

Realising late that you have virtually nothing in the pot is something that can be soul destroying so good on you for addressing it before it gets too bad. You should probably tactfully suggest it to your 40-yr old pals

£30k by 30 and £100k by 40 would be OK targets though the right number is different for everyone. You have over 50% of your house paid off which is another trade off, I'm quite a bit less than you at same age. We'll all want somewhere to live, and an income, and not to work, once we get older.

Yeah, spent most of the last 20 years spending what little I earn (I've never had a job that pays more than £36K a year). The best thing I did was to buy a house when I was 24 years old in 2001. I happened to get £10K out of the blue at that point and put £5K down on a £98,000 house in London. The fact that my LTV is 46% owes nothing to me paying off the mortgage, but rather that the house has gone up in value. My savings have all come from buying, and then selling, a BTL property off the back of it. (But in turn, my mortgage is higher too (now £145000), so they aren't really "savings" but cash from a remortgage ultimately). If it weren't for the house I'd be penniless and renting.

Didn't even think about pensions until 6 years ago, when I was 34.


Anyway, by hook or by crook, I think I'm OK on most financial things, bar the pension. So yes, I will pay as much as I possibly can into it for the rest of my working life (ie, 10% of my wages as a bare minimum, which I've been doing for the last 6 years) and hope for the best.

jdw2000

dunstonh wrote: »

I would say pension trumps ISA. I wouldnt like to say whether SIPP or Aegon does.



The police pension is very good. Shame is that most officers dont realise how good. In your case, you are behind but its not scarily behind. However, you do now need to take it seriously. I would be looking for 6 digits in your low 40s ideally.

Recently turned 40, and have about £48K. 6 digits would will likely be when I'm closer to 45, I guess.

So if the rule of thumb is £30K by 30, and £100K by 40, what is it at 50?

Dird

jdw2000 wrote: »

So if the rule of thumb is £30K by 30, and £100K by 40, what is it at 50?

50 = £250k
60 = £520k

I'm just pulling arbitrary numbers though based on £250/month earning 6% & deposits increasing by 2% per year

bowlhead99

jdw2000 wrote: »

Recently turned 40, and have about £48K. 6 digits would will likely be when I'm closer to 45, I guess.

Well, with 45k of cash in the bank and a decent amount of home equity you'd not be far off the pace at all really if you had 6 digits as a target by early 40s. Moving early to buy the house and a BTL investment has made up for ignoring the pension, fortunately (not that it's a good idea to recommend that to someone whose just starting out, who might not get as lucky with them both...)

So if the rule of thumb is £30K by 30, and £100K by 40, what is it at 50?

"As much as you can, and a lot more if you want to retire at 55 rather than 70".

Once you get that far through your working career and might have entirely different circumstances to someone else, it's impossible to say what you "should" have done with your life. The other figures are really just there to prompt you into action if you are well behind track, but if you didn't have any kind of pot by 50 you would really really need to work at it while preparing for perhaps a tough retirement on the standard state handout.

Say you have £100k now of pension and or investible cash at age 40. Grow it at 7% in real terms (an optimistic prediction I know) and it doubles every decade. So 20 years and it turns into £400k.

Then over the next 20 years you add another £5k a year in today's money (£100k) and that new £100k will have been deployed for 10 years on average (some for 0 years some for 20 years but 10 average), and we know that £100k for 10 years at 7% will double, so you will have £200k to add to your £400k.

So altogether £600k at age 60. But the growth rate of 7% in real terms was optimistic because 7% is more of a nominal rate rather than a real rate. So instead of assuming a £600k pot, assume £400-500k.

Assuming you can't find a decent job for a 60-yr old in your industry in a couple of decades time, that £400-500k would need to last you maybe 40+ years until you die after your long and happy life. Allowing a 4-5% drawdown from the pot each year (hopefully mostly covered by investment growth but will use up the pot over time) you are looking at £16-25k annual income, unless the market screws you over and gives you heavy early losses which means you erode the pot really fast. So best assume the £16k end of the scale.

So, from age 60 you have £16k a year, rising to maybe £24k after the first decade when state pension kicks in. If you want to be able to burn through money faster in the first decade while waiting for SP, better save another big wodge of cash for that too.

Overall then, using those completely wild guesstimate numbers, all is certainly not lost in your position.

But if you can't commit as much as £5k a year in today's money between yourself and your employer because you only earn £35k and only want to do 10% a year; and you are starting from £50k not £100k because you want a high savings balance and have a big mortgage; then perhaps there is a lot of work ahead of you if you want to retire on say 50% of your current earnings and don't fancy needing to work a lot in your 60s.

jdw2000

bowlhead99 wrote: »

Well, with 45k of cash in the bank and a decent amount of home equity you'd not be far off the pace at all really if you had 6 digits as a target by early 40s. Moving early to buy the house and a BTL investment has made up for ignoring the pension, fortunately (not that it's a good idea to recommend that to someone whose just starting out, who might not get as lucky with them both...)

"As much as you can, and a lot more if you want to retire at 55 rather than 70".

Once you get that far through your working career and might have entirely different circumstances to someone else, it's impossible to say what you "should" have done with your life. The other figures are really just there to prompt you into action if you are well behind track, but if you didn't have any kind of pot by 50 you would really really need to work at it while preparing for perhaps a tough retirement on the standard state handout.

Say you have £100k now of pension and or investible cash at age 40. Grow it at 7% in real terms (an optimistic prediction I know) and it doubles every decade. So 20 years and it turns into £400k.

Then over the next 20 years you add another £5k a year in today's money (£100k) and that new £100k will have been deployed for 10 years on average (some for 0 years some for 20 years but 10 average), and we know that £100k for 10 years at 7% will double, so you will have £200k to add to your £400k.

So altogether £600k at age 60. But the growth rate of 7% in real terms was optimistic because 7% is more of a nominal rate rather than a real rate. So instead of assuming a £600k pot, assume £400-500k.

Assuming you can't find a decent job for a 60-yr old in your industry in a couple of decades time, that £400-500k would need to last you maybe 40+ years until you die after your long and happy life. Allowing a 4-5% drawdown from the pot each year (hopefully mostly covered by investment growth but will use up the pot over time) you are looking at £16-25k annual income, unless the market screws you over and gives you heavy early losses which means you erode the pot really fast. So best assume the £16k end of the scale.

So, from age 60 you have £16k a year, rising to maybe £24k after the first decade when state pension kicks in. If you want to be able to burn through money faster in the first decade while waiting for SP, better save another big wodge of cash for that too.

Overall then, using those completely wild guesstimate numbers, all is certainly not lost in your position.

But if you can't commit as much as £5k a year in today's money between yourself and your employer because you only earn £35k and only want to do 10% a year; and you are starting from £50k not £100k because you want a high savings balance and have a big mortgage; then perhaps there is a lot of work ahead of you if you want to retire on say 50% of your current earnings and don't fancy needing to work a lot in your 60s.

Thank you very much indeed for that. This is all new to me, so I have saved that post and have read over it a few times to digest it.

No, I certainly don't want to have to work in my 60s and onwards. In fact, I'd happily retire now if I could! : )

Few quick questions / points:

- So £100K in the pension pot today will (or could realistically) grow to £400K in 20 years without being added to or managed by me? (That's using the 7% figure, which I understand is the upper estimate).

- Yes, I can certainly put at least £5K per year towards the pension each year. I have settled into putting 10% towards it because that was a previous employer's suggested rate. But I can just as easily do 15% to make sure that I'm saving £5K pa (and this doesn't factor in employer contributions, which I hope will increase over time due to their legal obligations).

- Yes, the pension pot as it stands is about £50K, rather than £100K, as the rest is in savings. I have been planning on adding to the savings to pay off my £146K mortgage. The reason I've not put that £46K (or even part of it) towards the mortgage yet is because I have a mortgage interest rate of 0.75% above BoE base rate for life (ie, it's currently 1%). And it therefore makes more sense to me to have those savings in accounts that generate more than 1% interest (such as Santander 123 which pays 1.5% etc). Obviously if the base rate goes up faster than savings rates then I'll think again and may put some towards the mortgage.

- The savings would probably do better in the pension pot (I'm guessing), but then they'd be out of reach if I need them for the next 15 years... Guess the solution is to find the best place for them, hence my search on this website for the best bank accounts.


It is encouraging to hear that there is still a way of getting a decent pension though, so thanks for that.