SIPP, ISA or Both

timbo29_2

I'm 29 years old and have decided to save £200 a month towards retirement.
1 year ago I changed jobs, previously I had a good pension scheme where my employer matched my contributions but the job I moved to was a standard work place pension which was a standard 2%.
I have not been able to top up the workplace pension so I have saved £2400 into my Halifax Savings account.
I have thoroughly read through information about ISA and SIPPS and have looked at products on the Hargreaves and Lansdown website.
I was planning on setting up an ISA and SIPP, and continue to pay £100 in each to spread, as there is advantages and disadvantages for both.

What do you think I should do?
1 - £200 a month to a SIPP
2 - £200 a month to a ISA
3 - £100 both to both an ISA and SIPP?

I appreciate your point of view in advance.

atush

£100 to both an ISA and SIPP

TBH, not enough information.

Why havent you been able to top up your pension over the 2% matched?

Do you own a home (or do you aspire to)?

Do you have any other savings or investments? Do you have dependents?

In general, no answers given, I would split it as you are young so wont be able to access funds in a pension until you are over 55 (will be 57+).

timbo29_2

Hi Atush

Yes I've got a mortgage.
The only savings I have is the £2400 in my Halifax savings account - all my other spare cash I put into paying off my mortgage.
My wife is pregnant and my baby is due at the end of the month!

Thanks for your input

Linton

If £2400 is all you have saved I believe your first priority ahead of paying off the mortgage or setting up a SIPP or S&S ISA, should be to build up an emergency cash fund of say 3-6 months living expenses to avoid getting into debt should you lose your job or something expensive breaks.

After that whether you should pay off your mortgage is arguable. If you can get a better return from your investments than you are being charged for your mortgage it may make sense to invest more instead.

Back to your original question...

Given you are paying enough into your employers pension to maximise their contribution and assuming you are a basic rate tax payer, at your stage in life it may make more sense to put spare money into an S&S ISA as the greater flexibility in accessing the money may prove helpful.

atush

£100 to both an ISA and SIPP

all my other spare cash I put into paying off my mortgage.
My wife is pregnant and my baby is due at the end of the month!

Stop overpaying immediately. You are coming into a high financial stress period with a baby coming (and pay from your partner being restricted and costs increasing).

For now, pay all spare cash into increasing your emergency cash fund as 2400 is to small with a little one on the way.

timbo29_2

Many thanks for your input.
I've decided to just pay £200 a month into a SIPP which is effectively £250 after the tax relief for now.

£200 is half what it is recommended that a person my age pays into a pension - and I suppose there is never a good time to pay into a pension!

Doing this keeps the majority of my savings in my Halifax savings account for a rainy day which I will also look to double in the next year.

LHW99

£200 to an ISA

I voted to put it all into an ISA since
a) its a way to increase accessible savings for the near future.
b) if its not needed, its always possible to pay a lump sum from the savings into a SIPP at a later date.
c) If you find its not needed as savings and you change jobs again to one with a better pension, it could always be used to pay down the mortgage when interest rates start to rise.

diamondchap

I have a similar dilemma to the OP and would appreciate some views.

I’m 44 earning c. £47,300 in Scotland, so subject to Scottish rates of tax from April 2017. My company has a pension scheme with NEST and they contribute 1% - there are no matching contributions if I invest more. They have agreed to give me their 1% pension contribution as an addition to my salary so that I can pay it into my SIPP (which I do).

I have a SIPP and an S&S ISA, both invested in the VLS80. I pay £400 into my SIPP and £500 into my S&S ISA each month. The SIPP is worth around £110,000 and the ISA around £205,000. I have no other pensions but expect to receive the full state pension (I’ve checked recently). I have around £20,000 in various savings accounts as an emergency fund. I have no interest-bearing debt; my only debt is a £7k 0% credit card on a ‘slow stooze’ for the next two years. I’m not married nor do I have children and don’t envisage either of those situations changing.

My mortgage will be paid off soon and hence I will have an extra £1,000 to invest each month. I appreciate that the most tax-efficient thing to do would be to invest it in my SIPP. However, a nagging voice in my head is loath to miss out on making the most of the annual ISA allowance - should I just ignore that though and invest it all in the pension? I’d be interested in thoughts from others on what they’ve done in similar situations.

Dazed_and_confused

diamondchap

Although you will benefiting from 40% tax relief on most of your pension payments these will be reducing your liability (on salary) to basic rate tax even taking into account the extra tax payable in Scotland from April so substantial additional pension payments won't be quite as beneficial purely from a tax relief perspective.

Not necessarily a reason not to go with the sipp but something to consider when weighing up your options

RuleTheWorld

I'd say make sure your pension payments are sufficient to take
you below 40% tax but beyond that the benefit is not as obvious so can be interesting to split between ISA and pension, maybe even LISA too

atush

£100 to both an ISA and SIPP

diamondchap wrote: »

I have a similar dilemma to the OP and would appreciate some views.

I’m 44 earning c. £47,300 in Scotland, so subject to Scottish rates of tax from April 2017. My company has a pension scheme with NEST and they contribute 1% - there are no matching contributions if I invest more. They have agreed to give me their 1% pension contribution as an addition to my salary so that I can pay it into my SIPP (which I do).

I have a SIPP and an S&S ISA, both invested in the VLS80. I pay £400 into my SIPP and £500 into my S&S ISA each month. The SIPP is worth around £110,000 and the ISA around £205,000. I have no other pensions but expect to receive the full state pension (I’ve checked recently). I have around £20,000 in various savings accounts as an emergency fund. I have no interest-bearing debt; my only debt is a £7k 0% credit card on a ‘slow stooze’ for the next two years. I’m not married nor do I have children and don’t envisage either of those situations changing.

My mortgage will be paid off soon and hence I will have an extra £1,000 to invest each month. I appreciate that the most tax-efficient thing to do would be to invest it in my SIPP. However, a nagging voice in my head is loath to miss out on making the most of the annual ISA allowance - should I just ignore that though and invest it all in the pension? I’d be interested in thoughts from others on what they’ve done in similar situations.

Your ISa amount is more than your pension amount, and you pay 40% tax.

So I would concentrate on the pension for now.

Why are you worried about losing your ISa allowance, but not worried about your pension allowance? given ISA allowances are rising, but pension allowances have been falling (and some expect them to fall further)?

And really, you should start your own thread for the most/best responses