SIPP Advice

summetj

Hi All,
I'm after a bit of advice re. pension provision for my wife if possible please?
State of pay for us is as follows:
Both coming up 48 years old
Myself 30 yrs in DB pension scheme which was closed approx' 3 yrs ago but the final salary payment element frozen till I'm 62 (can take slightly abated at 60 with Trustee permission)
Currently got generous DC scheme with company putting in 19% and myself 10% through my salary.
I've got 30yrs NI contributions into state pension.
My wife has very small private pension which went on hold a number of years ago. Payout from that is minor (from memory estimated about £100 a year)
23yrs NI contributions into state pension.
Our rationale is for my DB to be our main retirement income and my DC pot to cover what we need make up from what would have been my wife's earnings. We've also got other various S&S / cash ISA's and some P2P investments which will contribute to our F.I. pot.
Question is as to whether it's worthwhile for my wife to start a SIPP? She currently earns about £10K a year and up until recently I thought she wouldn't get the pension tax break due to her being a non-taxpayer however I believe that isn't the case and she would still get a tax break incentive for having a SIPP?
Thanks.

kidmugsy

summetj wrote: »

Myself 30 yrs in DB pension scheme which was closed approx' 3 yrs ago but the final salary payment element frozen till I'm 62

I'll save dunstonh the task of pointing out that "frozen" is exactly what it's not. The eventual pension to be paid out to you will be increasing yearly according to the inflation-protection provision in your scheme's T&Cs.

kidmugsy

summetj wrote: »

Both coming up 48 years old ...
My wife has very small private pension which went on hold a number of years ago. Payout from that is minor (from memory estimated about £100 a year) ... 23yrs NI contributions into state pension.

Question is as to whether it's worthwhile for my wife to start a SIPP? She currently earns about £10K a year

So she's presumably paying NICs every year: she should check to see that she'll be credited with 35 years by the time she reaches State Pension Age.

As for the SIPP, you bet! Presumably once she retires she'll have taxable income below the personal allowance vs income tax, so she'll be able to draw out not only the 25% tax-free lump sum, but also a goodly bit of the 75% with income tax at 0%.

At £10k earnings she could contribute up to £8k net per annum. The taxpayer then makes it up to £10k for her. Depending on your happiness at being cut off from that money until she is 55, you might consider draining some money from your savings to help meet the cost of the pension contribution. You'd want to be sure that you had ample "emergency money" still available outside the pensions. For some people it's even worth borrowing to get the money to fill pensions if cheap enough loans are available e.g. as mortgage loans.

summetj

kidmugsy wrote: »

I'll save dunstonh the task of pointing out that "frozen" is exactly what it's not. The eventual pension to be paid out to you will be increasing yearly according to the inflation-protection provision in your scheme's T&Cs.

Sorry, yes, you're right, it's inflation linked (Original I.C.I. pension :T)

summetj

kidmugsy wrote: »

So she's presumably paying NICs every year: she should check to see that she'll be credited with 35 years by the time she reaches State Pension Age.

As for the SIPP, you bet! Presumably once she retires she'll have taxable income below the personal allowance vs income tax, so she'll be able to draw out not only the 25% tax-free lump sum, but also a goodly bit of the 75% with income tax at 0%.

At £10k earnings she could contribute up to £8k net per annum. The taxpayer then makes it up to £10k for her. Depending on your happiness at being cut off from that money until she is 55, you might consider draining some money from your savings to help meet the cost of the pension contribution. You'd want to be sure that you had ample "emergency money" still available outside the pensions. For some people it's even worth borrowing to get the money to fill pensions if cheap enough loans are available e.g. as mortgage loans.

Thanks, you're confirming what I hoped I was thinking. Had a bit of a eureka moment when I realised what we're missing out on but just wanted to make sure.

summetj

Following on from original query, I'm looking to set up a SIPP for my wife with Hargreaves Lansdown.

Our existing S&S ISA's are with Cavendish. Simple portfolio of Vanguard Life Strategy 55/45 equities / bonds split and approx' 7% of portfolio invested in BlackRock Global Property Securities Equity Tracker.

I was thinking of mirroring this in the SIPP?


Any thoughts or comments appreciated.


Thanks.

AnotherJoe

I didn't think there was a VLS 55/45. Theres' a 20, 40, 60, 80 and 100. But not a 55.

Its a reasonable plan to mirror the ISA or you could choose similar low cost global funds with a smaller UK component (VLS is about 25% UK IIRC) Depends on your view over the next 10+ years.

I've a bit of VLS80 but mostly gone completely global which gets the UK down to about 7-8%. There are L&G and HSBC low cost global funds of various sorts.

summetj

There isn't specifically but if you mix:

LifeStrategy 60% Equity Fund @75% of total value LifeStrategy 40% Equity Fund @25% of total value you get a 55:45 equities/bond split.


I did this on the back of a Monevator article on perceived best equities / bond split according to your age.

summetj

AnotherJoe wrote: »

I didn't think there was a VLS 55/45. Theres' a 20, 40, 60, 80 and 100. But not a 55.

Its a reasonable plan to mirror the ISA or you could choose similar low cost global funds with a smaller UK component (VLS is about 25% UK IIRC) Depends on your view over the next 10+ years.

I've a bit of VLS80 but mostly gone completely global which gets the UK down to about 7-8%. There are L&G and HSBC low cost global funds of various sorts.

OK thanks, I'll check out the funds you've mentioned. I like to keep things as simple as possible, hence simplicity of our ISA's but appreciate that we wouldn't want to miss out on possible returns by having a bit more diversity

AnotherJoe

Id be quite sceptical about any mix depending on age, in that that sort of gradual move to bonds was meant to prepare you for what was basically an abrupt transition to retirement and buying an annuity.

But now that people may be in drawdown for 20,30 or 40 years the trend is moving to having a much higher percentage of equity for much longer. As a real-life example, my company started a new pension scheme in 2010 and the default was to be on this kind of lifestyling scheme whereby once members got to a certain age maybe 50 or so, they were gradually switched to bonds and cash.

Well, the rethink even over such a short time has been such that everyone at that sort of age now sees an adviser and the advice is to stay more more in equities. People only get into a lifestyle fund now if they actively choose it rather than it being the default..

kidmugsy

A REIT perhaps, a gold ETF, an international index-linked bond fund, and some global equity.

Golly, it's fun picking portfolios for other people. No sweat.

One investment writer whom I've liked over the years is John Kay. You might care to look at his website.

https://www.johnkay.com/2016/12/02/how-to-be-your-own-investment-manager/