SIPP query

nrsql

What are you planning to do with the money that is left in the sipp?
Ah, leave it in cash.

Bimbly

I don't think you have much to gain by moving out the 25% every year. I would leave it in the SIPP.

Cash is all fine, but your money won't grow and, indeed, will be whittled away by inflation because interest rates are so low.

You have about 6 years until you want access to this money. Then you presumably take it out over a number of years. You can take 25% tax free in one lump, or take 25% of each withdrawl tax free.

So you haven't got too long to invest and you are not familar with investing. So take a look at something simple. Maybe the Vanguard LifeStrategy 20 fund, which is 20% shares and 80% bonds (relatively low risk, although as always, not risk free):

http://monevator.com/using-vanguard-lifestrategy-funds-life/

Or maybe pick a target year for retirement and use their target date range?

http://monevator.com/vanguard-target-retirement-funds/

These are just suggestions of the sort of thing you could do, for you to take a look at and have a think.

You can always leave a proportion of your SIPP in cash. Say, 25%, if that makes you feel better.

Does that make sense to you?

Audaxer

dunstonh wrote: »

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

From all I read, I think it's okay to recycle £2,880 each year if you are well under the personal tax allowance. As long as you leave £1,000 in the SIPP you can profit from the £720 tax relief after year 1. I understand it is perfectly acceptable to do this provided you have not recently taken out a commencement tax free lump sum from another pension. The OP would just need to double check the recycling rules if she plans to take a commencement lump sum from her other pension mentioned in her opening post.

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.

If you are over 55 and using a SIPP in this way, is it not better to actually invest money in the S&S ISA rather than the SIPP, so investment gains are not subject to tax?

dunstonh

From all I read, I think it's okay to recycle £2,880 each year if you are well under the personal tax allowance. As long as you leave £1,000 in the SIPP you can profit from the £720 tax relief after year 1. I understand it is perfectly acceptable to do this provided you have not recently taken out a commencement tax free lump sum from another pension. The OP would just need to double check the recycling rules if she plans to take a commencement lump sum from her other pension mentioned in her opening post.

Yes. However, the OP seems to be of the impression that after the 20% tax relief is added, that the 25% PCLS should be taken. Whereas in reality, it is probably best left there with the investments and drawn only when needed.

cloud_dog

dunstonh wrote: »

Yes. However, the OP seems to be of the impression that after the 20% tax relief is added, that the 25% PCLS should be taken. Whereas in reality, it is probably best left there with the investments and drawn only when needed.

Ok, I'm gonna disagree....<neck>..<block>...

The OP has stated that they will be in receipt of a DB pension in 3 years (aged 60) of approx £11k pa and no PCLS, or £7.5k pa and £50k PCLS. They then will be receiving SP at age 67 (I assume).

So, from an income tax perspective why wouldn't you withdraw (in line with appropriate maximums), making use of any unused tax allowance now and simply place the money in to a S&S ISA investing in whatever you may have invested in within the SIPP?

dunstonh

cloud_dog wrote: »

Ok, I'm gonna disagree....<neck>..<block>...

The OP has stated that they will be in receipt of a DB pension in 3 years (aged 60) of approx £11k pa and no PCLS, or £7.5k pa and £50k PCLS. They then will be receiving SP at age 67 (I assume).

So, from an income tax perspective why wouldn't you withdraw (in line with appropriate maximums), making use of any unused tax allowance now and simply place the money in to a S&S ISA investing in whatever you may have invested in within the SIPP?

I refer you back to post #8 that says:
General rule of thumb is to not take money out of the pension unless you need it or it is tax planning.

What you describe is tax planning.

cloud_dog

dunstonh wrote: »

I refer you back to post #8 that says:
General rule of thumb is to not take money out of the pension unless you need it or it is tax planning.

What you describe is tax planning.

Ok, nice save but... the OP did state....

sgm61 wrote:

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.

This is the crux of the post so therefore, I would offer that the right honourable gentleperson should include that pertinent consideration in our opinions, and in doing so agree with the OPs idea, no?

dunstonh

I don't disagree with anything you say. Sometimes on threads, when information is posted over multiple posts, you look at the replies and answer to those as snapshots.

But drawing the 25% PCLS doesnt change whether the person is a taxpayer or not. Drawing the 75% is the issue for tax planning. I dont see that the OP was considering drawing the 75% in post #1

However, to be honest, there isnt enough details to say whether the 75% should be drawn or not. Plenty of retired people pay in £3600 a year every year to age 75 and don't draw a penny as they are doing it for the tax efficiency of the wrapper and to pass money on outside of the estate and to boost the retirement funds of the next generation.

The overall objectives need to be considered. What is the long term plans for the money? Is it best to use the pension as short term wrapper? or a long term financial planning wrapper?

AnotherJoe

sgm61 wrote: »

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.

You've misunderstood/misread.


The general advice regards the £2880 'trick' withdrawing the 25% tax free, is when that is money you want to take out and spend each year as you get it. And also generally spend down the rest of it quickly as well, leaving £1000 to stop the account being closed.

the advice is going to be different if your plan is to keep the money as cash for about 10 years which is what your initial posts come to.

Audaxer

AnotherJoe wrote: »

You've misunderstood/misread.


The general advice regards the £2880 'trick' withdrawing the 25% tax free, is when that is money you want to take out and spend each year as you get it. And also generally spend down the rest of it quickly as well, leaving £1000 to stop the account being closed.

the advice is going to be different if your plan is to keep the money as cash for about 10 years which is what your initial posts come to.

I think as the OP wants to just use cash in the SIPP and benefit from the full tax relief, the best way is to draw out the £2,600 by UFPLS the first year, leaving £1,000 in to keep the account open. From Year 2 she can then pay in £2,880 and take out a UFPLS each year for £3,600, thereby gaining the 25% cash profit of £720 per year that way. I don't see the point of just drawing out the 25% each year, as the remaining 75% will just sit in the SIPP doing nothing. Better surely to draw the lot out so she can pay back in £2,880 of it the next tax year to repeat the process?