Is it worth opening a SIPP?

bundoran

I'd be grateful to hear some views on whether it would be worth it for me to open a SIPP, or if there would be no point in my circumstances, or if the benefits would only be marginal at best.

My circumstances are as follows:
I'm 55 and I don't work.
I have income from investments which means that I am (only just) a basic rate taxpayer, and will remain so until I get my occupational final salary pension at 60, when I will be still a basic rate taxpayer.
I am paying voluntary NI contributions for the next six years so that I will get the full new flat rate state pension when I am 67.
I am single, have no dependents and own my house outright, and I don't have any debts.

I understand that I can pay £2880 a year into a SIPP and that the government will top this up to £3600. However there will never be a time when I could draw anything from a SIPP without it being subject to basic rate income tax.

Therefore I've worked out that there isn't much point in opening a SIPP and paying in £2880 a year in my circumstances.

Am I right or wrong?

I'd been thinking of opening a SIPP with AJ Bell as I understand they're cheapest and they're a reliable provider. If opening a SIPP was the right thing for me to do, would they be the best company for me to go with?

I'd be grateful to hear any opinions or to be given any information that you could offer. If you need any further information about my circumstances so you can formulate any advice then please ask.

Thank you for your help!

BLB53

I understand that I can pay £2880 a year into a SIPP and that the government will top this up to £3600. However there will never be a time when I could draw anything from a SIPP without it being subject to basic rate income tax.

Therefore I've worked out that there isn't much point in opening a SIPP and paying in £2880 a year in my circumstances.

I think it would be worth starting a SIPP as you would get the 25% tax-free lump sum when you take benefits which means your effective tax rate reduces from 20% to 15%.

I have my SIPP with AJ Bell and can recommend.

cloud_dog

You are incorrect, a little.

Whilst you are correct you would be taxed on the income, assuming there is other taxable income that taxes you to or over the personal allowance, you will receive 25% of the SIPP tax free.

Think of it this way, for every £3600 that is contributed to your SIPP after you withdraw £3600 you will have only paid 15% income tax rather than 20% so, 5% return for doing pretty much nothing.

Re your investment income... Is this taxable, and if it is why aren't you moving the investments in to a (S&S) ISA so that the income is tax exempt?

kidmugsy

Suppose you can move or change your investments so that your taxable income falls £2,700 below the Personal Allowance. Then you can open a SIPP with £2,880 and the taxpayer makes it up to £3,600 for you, a profit of £720. Then you take out the TFLS of £900 and as much of the taxable bit as you want (which will be tax-free because of the personal allowance).

Be sure to leave enough money behind in the SIPP that you don't have to pay heavy charges for emptying it too soon.

I suggest you check the charges and T&Cs at A J Bell and at Hargreaves Lansdown. SIPPS may still be a decent deal for you after 60 but they will be less stellar.

Lungboy

bundoran wrote: »

I'd been thinking of opening a SIPP with AJ Bell as I understand they're cheapest and they're a reliable provider.

Whether they are cheapest will depend on how you're going to fund the SIPP, and what you'll be buying within it. Do a forum search for Snowman's spreadsheet, or have a look at http://monevator.com/compare-the-brokers/

bundoran

cloud_dog wrote: »

Re your investment income... Is this taxable, and if it is why aren't you moving the investments in to a (S&S) ISA so that the income is tax exempt?

I move £20K a year into my stock and shares ISA. Unfortunately I came a little late to stocks and shares ISAs! The rest of my investment income is taxable, and with the work pension arriving when I'm 60 and the state one when I'm 67 I'll always be a basic rate taxpayer, as before I'm 60 I can't move my investments into the ISA quick enough.

I'm not complaining - it is a nice problem to have.

Thank you and your fellow posters for your postings so far!

kidmugsy

But might it be possible to change the investments around so that you have personal allowance unused? Do you fully use the dividend allowance, the savings interest allowance, the starting rate for savings allowance? Do you have high-yielder equity in your ISAs and low-yielders outside? Do you hold gilts and corporate bonds tax-exposed (their interest counts as savings interest)? I'll grant you that the fuss and expense may not be worth it for £720 p.a. but it's worth a thought.

If you have a lot of cash earning taxable interest could it be worth moving £50k into premium bonds? Their interest-like stream of small winnings in tax-free.

cloud_dog

bundoran wrote: »

I move £20K a year into my stock and shares ISA. Unfortunately I came a little late to stocks and shares ISAs! The rest of my investment income is taxable, and with the work pension arriving when I'm 60 and the state one when I'm 67 I'll always be a basic rate taxpayer, as before I'm 60 I can't move my investments into the ISA quick enough.

I'm not complaining - it is a nice problem to have.

Thank you and your fellow posters for your postings so far!

Depending on what your investments are in (funds etc), have you considered moving some (a percentage) out of income generating investments in to capital generating investments and then simply selling a percentage each year?

Although this may impact on your ability to move investments in to the S&S ISA wrapper each due to capital gains considerations. But, it may be something you can investigate, i.e. if moving £20k of investments in to the ISA realises £8k of capital gains you would still have £3.7k for 2018/19 available to take as a lump sum (after selling some investments) and use to support your living arrangements.

bundoran

Thank you to everyone who has contributed. You have given me plenty of food for thought and lots of good pointers and I'm very grateful.

I'm glad I asked! :T

Thrugelmir

Why a SIPP (as a pension vehicle) ? With a low level of contributions is it really worthwhile. Not as if there's much time to build a sizable portfolio.