Should I get a SIPP at age 56?

Murmansk

I'm 56, getting £400 per month from the Local Government Pension Scheme, self-employed, unlikely to earn enough from that to pay tax this year.

No kids, single, own my own place outright. Have about £180K of which £120K is invested in Vanguard LifeStrategy and Nutmeg/Moneyfarm. Remainder of the £180K is in cash.

Should I be looking at SIPPs? I'm attracted by the 20% the government adds but don't feel I know much about them and most of the people getting into them are of course far younger than me.

Itsallagame

Murmansk wrote: »

I'm 56, getting £400 per month from the Local Government Pension Scheme, self-employed, unlikely to earn enough from that to pay tax this year.

No kids, single, own my own place outright. Have about £180K of which £120K is invested in Vanguard LifeStrategy and Nutmeg/Moneyfarm. Remainder of the £180K is in cash.

Should I be looking at SIPPs? I'm attracted by the 20% the government adds but don't feel I know much about them and most of the people getting into them are of course far younger than me.

Due to an incorrect tax relief calculator I was using for my wife's income on the Candid Money website I'd not realised until very recently that as a non tax payer my wife could get tax relief on all her earnings up to the limit of the tax allowance.

As an example my wife earns £7k working a couple of day's PT. Previously I had been paying in £2880 into her pension due to her not paying any tax and getting a rebate of £720. I now pay in £5600 which receives a tax rebate of £1400.

If you have savings that you can use to pay into a Sipp to earn the maximum tax relief based on your earnings that you can then extract tax free within your allowance.

Where else are you going to get an immediate 20% return.

I'm just annoyed with myself that I'd not understood the rules earlier re working non taxpayer pension contributions.

Mnd

Yes, for every £80 you invest you get £20 tax relief

enthusiasticsaver

I did not open a SIPP until I was 55. I had an occupational pension but read I could invest up to 100% of my earnings less the tax relief and existing pension contributions so year 1 I invested £8k and the HMRC added £2k and this year I added £6k as I retire next month and have just received £1.5k in from HMRC. So that is a return of £3.5k on an investment of £14k ignoring the increase in value of investment.

So I would say yes it is worth it. I will be adding the £2886 next year after retirement too. You could alwYs leave it in the cash part of SIPP if you don't want to invest due to needing the money sooner rather than later. We have other cash assets to draw on and 2 final salary pensions which we are drawing on aso have invested it.

Murmansk

Thanks for those replies, this is interesting.

I'm wondering about what you say about leaving it in the cash part of the SIPP. Does this mean that if I decided I didn't want to take the risk of actually investing the money, I could just leave it in there earning nothing BUT benefit from the 20% tax relief? This sounds like a good way of getting a 20% bonus with no risk?

I guess it only works for one year as you don't get the 20% on that particular bit of money each year but simply in the year when you put it in.

Murmansk

A further question.
Being a bit of a fan of Vanguard LifeStrategy and already having money with them, I'm thinking of a SIPP which contains VLS - but Vanguard don't do pensions at the moment.

Presumably I could start a SIPP with a provider/platform and put VLS in it?? If so, who would be a suitable company to do this?
Thanks

xylophone

The HL SIPP might be of interest - no charge for keeping money in cash and no charge for withdrawals.

You can contribute up to the maximum in your circumstances in each tax year and receive the tax relief.

If you have no "relevant earnings", then you can contribute up to £2880 per year and receive tax relief of £720.

Your LGPS pension is not relevant earnings but your employment income is.

For example, suppose your only relevant earnings are £5000 in this tax year - you could contribute £4000 to the SIPP and receive tax relief of £1000.

You could then take 25% tax free - withdrawals over this are taxed as income in the year of receipt.

You would avoid closing the SIPP in the first year because of the early closure fee.

You can continue in the same way up to age 75.

Mnd

Yes you can keep your fund in cash, Hargreaves Lansdown don't charge for this, but your cash isn't protected against inflation.

Give_me_the_money

Hi long time reader of these threads,
l would appricate clarification on the following :
I am 56 and currently working PT earning roughly £6k a year, and l have given up my marriage allowance to my wife.
1 . Can l increase my £2880 cash sipp with H&L up to my allowance, making sure l stay within my non paying tax code.
2. Would l be better off taking my allowance back from my wife, thus giving me the opportunity to increase my payment into my cash sipp. Wife currently earns £15k a year.
3. When my DB pension kicks in, £14k in (3 years time) my earnings will be above my allowance. Am l right in saying this 20% increase from the government becomes unviable for me due the tax l will have to pay when drawing down the cash in my Sipp,

I hope above makes sense, any views would be appreciated.

kidmugsy

Murmansk wrote: »

This sounds like a good way of getting a 20% bonus with no risk?

Even better, it's a 25% bonus. £80 becomes £100.

kidmugsy

Give_me_the_money wrote: »

I am 56 and currently working PT earning roughly £6k a year, and l have given up my marriage allowance to my wife.

Can l increase my £2880 cash sipp with H&L up to my allowance, making sure l stay within my non paying tax code.

You can contribute up to your earnings, so £6k gross. That means you hand over £4.8k net and your provider claims the £1.2k tax relief from HMRC. Your "non paying tax code" is irrelevant to how much you can contribute. It does, however, govern how much you can drawdown without having to pay tax on it.

Give_me_the_money wrote: »

. Would l be better off taking my allowance back from my wife, thus giving me the opportunity to increase my payment into my cash sipp.

It doesn't give you that opportunity; see above. I don't see any point in taking back your marriage allowance. Here are the rules: "Marriage Allowance lets you transfer £1,150 of your Personal Allowance to your ... wife ... if they earn more than you. This reduces their tax by up to £230 in the tax year (6 April to 5 April the next year). To benefit as a couple, you (as the lower earner) must have an income of £11,500 or less."

So suppose you contribute the £4,800 net. You draw the 25% TFLS = £1,500. You draw down £4,350 of taxable income. Then your total taxable income is £6,000 + £4,350 = £10,350. Bingo, no income tax for you to pay, your income satisfies the test above, and your wife continues to benefit from the marriage allowance. You've left £150 behind in the pension for future use. Sounds a pretty successful outcome to me.

The wise man would consider using his extra income conjured up out of nowhere to increase pension contributions for his wife. So be wise and have a look to see whether there's an advantage there currently going unused.

Give_me_the_money wrote: »

. When my DB pension kicks in, £14k in (3 years time) my earnings will be above my allowance. Am l right in saying this 20% increase from the government becomes unviable for me due the tax l will have to pay when drawing down the cash in my Sipp

(i) It's your income that'll be above the Personal Allowance, not your earnings. Your earnings are, you've said, £6,000 per year.

(ii) It will still be a profitable stunt, it's just that it'll be less profitable.

(iii)But you will have to get your marriage allowance back.