sipp advise please

HRT_dependant

good morning

I would like to start a sipp but I am a bit muddled
I am 58 and would like to stop working at aprox 62
this year I would have earned £12000
but next year I will be cutting down due to health and will only earn £6000

I pay into lgp at 5.5% which will pay out a small amount and I don't know whether to leave the till state pension age or take it when I leave as I could live off my savings

I have a good amount savings but wonder if opening a sipp with a lump sum every year would utilize it better.

then do I leave it in there and just withdraw the 20% lump sum every year, or is it best to leave it all and just add another lump sum year.
also i'm confused at the amount I can put in with my earnings.
also when I open it do I leave it in cash or invest it

I hope this makes sense as i'm feeling muddled just typing it

many thanks

jamesd

You can pay in gross your pay minus the amount you pay into LGPS. So subtract your LGPS contributions from 12000 and multiply the answer by 0.8 to get the net to pay in. You should do this instead of keeping the money in savings.

You can take a 25% tax free lump sum from the money paid in whenever you like, including from the new money every tax year. Unless you need the money it doesn't matter whether you take it quickly or slowly. Given the short four year time it's OK to just leave the money in cash unless you expect to leave it there for longer than that.

Do that paying in for this year but for next year you might seem to have a better choice because you are in LGPS.

LGPS offers AVCs and when you take your LGPS pension you can take out 100% of the AVCs up to 25% of the combined AVC and pension value as a tax free lump sum. 100% tax free beats 25% tax free. Normally that would be a better deal and I'd tell you to do that, but there's a catch. Your total earnings.

LGPS AVCs are taken from pay before tax is deducted, so given your income level you would get no tax relief on the way in. But you would still get 25% added to give you 20% relief if you used a SIPP, even though you wouldn't be paying any income tax. When it comes to taking money out it seems that you would have enough unused personal allowance for long enough to get all of the SIPP money out tax free. So the 100% out tax free from the LGPS doesn't do any more than match the tax free amount that you can take anyway. But you don't get the 25% added if you use the AVCs so in your case it's better not to use AVCs but to use a SIPP instead.

jamesd

Probably better to take LGPS at the normal retirement age and life off savings and the SIPP. That will let you get all of the SIPP money out with no tax to pay on it because your personal allowance would be available. Since you have the savings and will have the SIPP there's no need to take the LGPS early and cut how much it will pay you for life.

Your questions all made sense.

jamesd

LGPS also offers you the option to buy extra pension. Please get a quote for doing this with a lump sum of £100 so we can compare it to your other options.

Please also get a state pension statement and tell us what you LGPS is currently expected to pay as a pension.

This will let us work out whether you can get a better deal for extra money by buying more LGPS pension or by deferring claiming your state pension. It will also let us get an idea of whether you might qualify for means tested benefits after state pension age, but to do that we'd also need details of any other pensions you have.

It's also worth checking what benefits you might be entitled to now and next year.

jamesd

You mentioned health as a problem. Is it something that might affect how long you will live, your life expectancy?

Knowing that matters because it could make buying more pension be buying more from LGPS or deferring the state pension a less good deal than buying an annuity because the first two assume normal life expectancy. An "enhanced" annuity would take your actual life expectancy and use that to pay you more than a good health annuity. But still maybe not more than buying extra LGPS or state pension deferral, depends on the quote.

HRT_dependant

good morning jamesd thank you so much for helping me

HRT_dependant

also just one more question please
this may sound very stupid to someone that knows about pensions:o sorry

what happens to all the money that is left in the sipp when you did or id you die suddenly ie accident

many thanks

dunstonh

what happens to all the money that is left in the sipp when you did or id you die suddenly ie accident

The full value is paid to a beneficiary. its not lost.

HRT_dependant

thank you for reply dunstonh

jamesd

You fill in an "expression of wishes" form which tells the trustees what you want to happen. The trustees would normally act as you wish unless something substantial changed in your circumstances between the form and your death, like divorce, marriage or new child. In those cases they are required by law to try to decide what you would have wanted if you had updated your guidance. If you want to do something unusual, like not leaving money to family because you're providing for them in other ways, you'd be wise to explain this. Your will, if any, doesn't govern but it can be taken into account.

The money is inherited as a tax free lump sum if you die before 75, else as a pension pot from which the recipient can take taxable income at any age, including below 55.