Really late retirement plan...

Steve_GP220

barginfinder wrote: »

Regarding what investments are available, the S&S ISA and the SIPP are almost identical. In terms of tax, both are free of dividend or CGT. The main difference - which I think you have grasped, is that with the ISA there are no restrictions, you can take the money when you like free of any tax. With a SIPP you can take 25% tax free, the rest is subject to income tax. This means if after the 25% you wanted to buy a boat for 20K, after your 12K per year personal tax free allowance you would pay 25% on the remaining 8K = 2k tax. So if you are saving for a large purchase, the ISA works well. However if you are saving to provide an income on retirement, the SIPP will work better unless you think you will be very well off, the reason being you use up your personal allowance first (the state pension will be around 6K, leaving you able to take 6K every year from the SIPP without paying any tax) and the one very extra large bonus on the SIPP is your contributions get topped up by the taxman : 25% so for every 1K you pay in, the taxman adds £250 - so the value of your SIPP immediately increases by 25% compared to the same amount put into an ISA. I myself am in a similar position, where when I retire I will have a combination of state pension and a small workplace pension. I am trying to balance contributions to a ISA and a SIPP so I maximise the 25% top up on the SIPP contributions, but my retirement income is not so high I will pay a lot of income tax. The money going into the ISA will be to top my retirement income tax free and leave a fund for large purchases / emergencies, so that will be a S&S ISA and a cash ISA. In your position I would start a SIPP straight away but first confirm how much you are allowed and still get the taxman top up - bearing in mind the 4K limit mentioned earlier.

This pretty much says it all for me!

atush

The most important thing is to get started with a pension immediately- be it current employer or a PP/Sipp/

Because you cashed in a pension, incl the taxable 75%, you still have 10K you can put in this year (before they change it to 4K) and you could possibly use past years allowances (not sure how that works with the reduced allowance)?

In any case, you need to get on with it while you can.

barginfinder

I think you can only use past years allowances if you have been paying into a pension during those years

EdSwippet

atush wrote: »

Because you cashed in a pension, incl the taxable 75%, you still have 10K you can put in this year (before they change it to 4K) ...

Unfortunately not. The government has said that it will backdate the reduction to April 2017. From the Pensions Advisory Service:

Changes to the annual allowance
The Money Purchase Annual Allowance (MPAA)

If you have taken flexible benefits which include income, such as an ‘Uncrystallised Funds Pension Lump Sum (UFPLS)’ or flexi-access drawdown with income, and you want to continue paying contributions to a defined contribution pension scheme, you will have a reduced annual allowance of £10,000 p.a towards your defined contribution benefits. The government has announced that this is reducing to £4,000 gross p.a. and will be backdated to apply from 6th April 2017. The reduced allowance will apply if you have withdrawn more than the 25% tax free pension commencement lump sum (PCLS). The reduced amount is known as the ‘money purchase annual allowance' (MPAA) and includes both your own contribution and any other contribution paid on your behalf, such as an employer or a third party. You cannot bring forward any unused annual allowances from the previous three tax years to warrant a higher contribution than £4,000 towards your defined contribution benefits.