SIPP query

sgm61

I have been reading these threads and am thinking of opening a SIPP to get benefit of the 25% top up. I currently work part-time and earn approx £9000 pa gross - I commenced work with the NHS in 2016 and am a member of their 2015 Scheme paying in 5.6% of my salary. I am 57 years and am due to receive a pension from a previous employment when I turn 60 in 2021. This pension will be approx £11k pa with no lump sum, min £7500 pa with max £50k lump sum (to nearest £k) or an amount in between depending on size of lump sum taken.

My husband is a 40% tax payer and therefore I cannot transfer the marriage tax relief to him. As I am not using all of my present PA I was wondering if it would make sense for me to open a cash SIPP adding each year min £2880 - withdrawing the tax free 25% and placing same in an ISA from now until I retire which I hope to do around age 63/64 - SPA is 67 years and with completion of 18/19 tax year will have enough contributions for a SP of £8300 pa.

What I was also thinking was when I get my personal pension from age 60 years I could contribute more into the SIPP (as I intend continuing working for 3-4 years part-time) and I was thinking I would add say £6k pa into the SIPP to build up funds to supplement my income between leaving NHS and SPA of 67.

Is this a good plan for me - I don't want to get used to spending the personal pension monies but would rather put them aside until my income was reduced so that I (well we, hubby too) could maximise our income when we become fully fledged pensioners.

AnotherJoe

Not sure I see the point of taking out the 25% tax free and putting it into an ISA when you could keep it in the SIPP amd invest it the same way.
You could also put more than £2880 in.

sgm61

I thought it was "best" to lift the 25% and put it away in an ISA earning interest (albeit small) - my understanding was (and could be totally wrong) that the SIPP pays no interest on the 75% remaining???? Please correct me if I have totally got this wrong...

Audaxer

I don't see the point of only taking the 25% out of the SIPP. Once the 25% tax free is added I would take it all out (apart from £1,000 which you may need to leave in to keep the SIPP open) and put it into an S&S ISA. No point in leaving 75% in the SIPP to actually invest it and pay tax on investment gains when you eventually withdraw from the SIPP. As you are over 55 you can effectively transfer the cash from the SIPP into an S&S ISA once you have the tax relief, as none of your investments gains in the S&S ISA will be taxed.

You can repeat the process each subsequent year so that you gain the tax relief on the £2,880 you put in the SIPP each year and then invest the gross £3,600 into an S&S ISA.

sgm61

Okay I know about ISAs (cash) but have absolutely no knowledge of S&S ISAs ..... are they difficult to manage? I know nothing about buying shares etc.. Would this be the best place for my money with my non-knowledge of what i would be investing in?

sgm61

So do I understand from what you say that if I leave the remaining 75% in a SIPP it will be invested and when I withdraw I will be subject to investment gains? I thought I was putting into a cash SIPP where my money would be available to me, subject only to 20% tax if I was over my tax PA?

Audaxer

sgm61 wrote: »

Okay I know about ISAs (cash) but have absolutely no knowledge of S&S ISAs ..... are they difficult to manage? I know nothing about buying shares etc.. Would this be the best place for my money with my non-knowledge of what i would be investing in?

S&S ISAs is just a tax wrapper as is a SIPP. They can hold the same investments once you put your money in. As you were asking about SIPPs I assumed you wanted to invest the cash once the tax relief was added. That is why I suggested investing moving the cash into a S&S ISA rather than leaving it in the SIPP.

If you do decide to invest, it is better to invest in globally diversified funds rather than individual shares, but before doing any investing I would suggest reading all you can on this forum and sites like Monevator which is very good for gaining initial knowledge to start investing.

dunstonh

I thought it was "best" to lift the 25% and put it away in an ISA earning interest (albeit small)

General rule of thumb is to not take money out of the pension unless you need it or it is tax planning.

but have absolutely no knowledge of S&S ISAs ..... are they difficult to manage?

Yet you are investing in a SIPP which has identical investments. Why is it that you think the ISA is harder than a SIPP?

I thought I was putting into a cash SIPP where my money would be available to me, subject only to 20% tax if I was over my tax PA?

You are. However, you have to invest that money. Remember a SIPP is the pension aimed at experienced investors wanting to take on more advanced investments not typically available on stakeholder pensions and personal pensions.

So do I understand from what you say that if I leave the remaining 75% in a SIPP it will be invested and when I withdraw I will be subject to investment gains?

Why take the 25% out?

AnotherJoe

sgm61 wrote: »

I thought it was "best" to lift the 25% and put it away in an ISA earning interest (albeit small) - my understanding was (and could be totally wrong) that the SIPP pays no interest on the 75% remaining???? Please correct me if I have totally got this wrong...

Not wrong, but by leaving it as cash for 10 or so years at ISA dismal interest rates, you will likely lose most of the 25% gain you made, to inflation. Seems a bit pointless. Of course the last years losses to inflation wont be as bad as the first years "tranche" as they will be there for less time but even so, thats not good money management.



is the situation you dont currently have any investments, and all your money is in cash ISAs ?(where its gradually evaporating away due to inflation?)

sgm61

ok, I guess I'm really beginning to understand how totally clueless I am about pensions in general. I had read threads on here and thought that the general consensus was that it was a good idea to place cash in a SIPP (HL crops up time and time again) to take advantage of the 25% tax payment made by the Govnt and then lift 25% cash which was tax free, place it somewhere easily accessible and then lift the remaining 75% only in amounts that kept you under your Tax PA or else you would be subjected to your normal tax rate, i.e 20%for me. Should monies be remaining in SIPP, it would have been left as it was and I then intended to add additional monies each year (up to 80% of my earned income taking into account pension contributions already made to NHS scheme), again lifting the 25% tax free amount and leaving the remaining funds to increase. My plan was then to use these funds when I finally took early retirement/left NHS at around 63/64 and use the accumulated funds to supplement my income until my SP kicked in at 67.

Am I understanding from what you say, it would be best for me to leave all the funds untouched in the SIPP and then lifting a huge 25% tax free and then the remaining 75% lifting same in amounts which would keep me under my PA?

I thought a S&S ISA was much more difficult than operating a SIPP as I imagined that I would have to make all these decisions about stocks and shares about which I know nothing, instead of working with cash which I understood I would be if I used a SIPP. Shows really I know very little about what I am talking about, but I am truly trying to understand.

sgm61

In reply to your question, and I don't yet know how to quote...

I have no other investments for retirement other than very modest savings of £30k (compared to practically everyone else on this thread) a previous employment pension which is due to pay out in 2021 when I turn 60, :- either £11k with no lump sum, or probably £9k with £35k lump sum,
currently working pt earning approx £9k with anticipated NHS pension at 67 of £2k (if lucky) and SP which I've checked and states I am due £8300 aged 67.

Hubby NHS pension due 2020 (60yrs) of approx £24k - seriously considering taking early retirement 1-2 years early - will take reduction of 5-10% of same to keep his sanity and health. Hubby then plans to seek work elsewhere earning approx £10k for as long as he can before SPA of 66. (He actually has been approached this week and offered a position if he were to retire within the next year).

So financially when we both reach SP ages we will be okay, I'm looking at how I can maximize my financial footing between now and SP to make my money work best for me.