Any reason NOT to pull 25% from my SIPP and put into an ISA?

dunroving

Have recently retired, and have a modest DB pension.

I'll therefore always be over threshold for basic tax due to my DB pension, and unless I go crazy and empty my SIPP in a moment of madness, I will never go over the threshold for higher-rate income tax.

Is there any reason not to pull my 25% tax-free element from the SIPP and put into similar funds in an ISA? I'd have to pay into the ISA over a 2-year period, as the 25% would be > £20k.

I'm thinking of this strategy due to a distrust that at some point, the 25% "tax free" element of DC pensions will be removed. I figure I'd take it out while I still can. I've done some basic maths and it seems from a tax point of view, there's no reason not to do this.

Peter314

That’s what I’m planning to do. Particularly beneficial if L.A. is an issue, when growth within the ISA instead of pension is tax efficient.

anselld

Peter314 wrote: »

That’s what I’m planning to do. Particularly beneficial if L.A. is an issue, when growth within the ISA instead of pension is tax efficient.

Not sure it is that simple.

Lets say you are at the current LTA for the sake of argument.

To get out 25% you would need to crystalise £1m and consume the whole LTA. Fair enough the £250k would be out tax free but you would lose the benefit of indexation on the LTA and all growth on the remaining 75% would be potentially exposed to further LTA charges.

Alternatively you just crystalise £80k each year to fill the ISA with £20k you are still gradually losing out on inflation protection of the LTA. That may be sensible if you have no other resources to fill your ISA but given that we are talking about a hypothetical person who has just run out of LTA headroom that seems unlikely.

HappyHarry

Inheritance tax may be a consideration. Your SIPP is outside your estate, but your ISA won’t be.

It’s very unlikely that the 25% tax free will be removed for existing pension pots. More likely that future contributions will be affected and past contributions will be protected in some way. This is generally the way legislative pension changes have been applied.

kidmugsy

The money is safer from creditors inside a pension than in an ISA. Is anyone going to sue you?

More seriously, I could imagine a government reducing the annual subscription limit for ISAs, so you may like to get on with it at £20k in 17/18 and 18/19. It could all be done by 6th of April.

Another view: are you married? Would making pension contributions for your spouse be more profitable than filling ISAs?

dunroving

Thanks for the replies. My background is that I am not married (so the spouse's pension idea doesn't apply), and have no kids. I am currently over the IHT limit, so that is a consideration, although I read that it is being gradually increased to £500k (though who knows, as these things seem to waft and wane depending on who is in government and how messed up the economy is). LTA is nowhere near being an issue for me.

I'll probably wait until next tax year to make a decision. I can use this year's ISA allowance as I have savings that I can park there. I'm moving house next year and after that's done, I'll have a better idea what proportion of my capital is in SIPP, ISA, 401k and cash (I live in a low-cost housing area so will likely have to put an additional £50k at least into my new house).

I plan to wait and draw down from my pension last of all (if I ever need it), so even if I pull the 25% TFLS out, there will be a healthy chunk left that will be outside IHT.