Getting it back out....

bigadaj

Frobisher2 wrote: »

Having no tax on gains or income while in the SIPP is of no benefit if your are taxed at the same rate when taking it out. Granted the TFLS is a saving (OK, apart from the TFLS, what have the romans ever done for us?).

However, given 30+ years of investment growth, you could find yourself not paying BR tax on the way IN but having to pay HR tax on the way OUT, if you want to take it out in a reasonable timeframe.

It's a risk which is why many consider pension contributions a no brainer for HR taxpayers, but marginal for basic rate taxpayers.

The other point to consider is whether these tax rates will remain the same, looking over many decades then tax rates within these bands can vary dramatically, and currently are at relative lows. We have supposedly been through a period of austerity but whilst the deficit may have reduced the debt certainly hasn't, only way to manage an economy is to borrow, tax or make cuts.

Triumph13

Frobisher2 wrote: »

"having to pay HR tax on the way OUT, if you want to take it out in a reasonable timeframe."

I'm not sure you've grasped the basic premise of pensions if you are wanting to take the money out "in a reasonable timeframe". The whole idea is that you are supposed to take it out slowly over decades, living on the proceeds.

Malthusian

Frobisher2 wrote: »

Having no tax on gains or income while in the SIPP is of no benefit if your are taxed at the same rate when taking it out.

It is of some benefit if the alternative is to invest it in your own name and pay income and capital gains tax.

However, with ISA allowances, dividend allowances, capital gains allowances etc, for many people there is not a great deal of benefit in the "tax free growth" part of the equation, and by far the best thing about pensions is tax relief on the way in.

However, given 30+ years of investment growth, you could find yourself not paying BR tax on the way IN but having to pay HR tax on the way OUT, if you want to take it out in a reasonable timeframe.

Paying higher rate tax on pension income falls squarely into the category of "nice problems to have". In my experience it tends to happen mostly when you have a massive final salary pension that in itself takes you into the higher rate bracket. Most people, even those of high net worth, can manage their affairs to stay under the higher rate threshold once employment income is out of the way.