Drawdown Proposal for benefit of son

triplea35

My wife has a SIPP currently valued at £80000. She is nearly 62, a non earner, her savings interest for this tax year will amount to £1800.

We originally intended to leave the SIPP invested for the benefit of our 26yr old son, primarily to boost his own pension in later life.

He currently earns £27k, his current employer enrolled him in a Nest pension, the current pot is around £600. I understand minimum contributions will increase over the next few years but cant imagine him ever having a significant pension pot to draw on.

I opened a HL SIPP for him a few years ago, haven't contributed this tax year yet, but value is around £19k from previous years and growth.

I have suddenly realised that leaving my wife's SIPP as it is is probably not the most tax efficient route.

My first thought was to go to drawdown and take the 25% tax free (£20k) and reinvest it in my sons SIPP. It has now also dawned on me, and hopefully haven't left it too late , that we could also draw out to the value of my wife's remaining personal tax allowance, although taxed we could claim it back, and do this each year. State Pension will use a lot of her personal allowance when 66, but barring anything happening to me, when she would receive pension using up her personal allowance, we could keep withdrawing, claiming the tax back, and reinvesting in our son's SIPP for him.

Is this a sensible proposal?

Should we keep investing £2880 per year in my wife's SIPP?

By loading my son's SIPP in the next few years how significant will it impact on final values?

TIA

Brynsam

triplea35 wrote: »

By loading my son's SIPP in the next few years how significant will it impact on final values?

Depends how well it performs, but the general advice of 'save as much as you can as soon as you can' should give you a very strong clue!

kidmugsy

triplea35 wrote: »

My wife has a SIPP currently valued at £80000. She is nearly 62, a non earner, her savings interest for this tax year will amount to £1800.

He currently earns £27k, his current employer enrolled him in a Nest pension, the current pot is around £600. I understand minimum contributions will increase over the next few years but cant imagine him ever having a significant pension pot to draw on.

I opened a HL SIPP for him a few years ago, haven't contributed this tax year yet, but value is around £19k from previous years and growth.

My first thought was to go to drawdown and take the 25% tax free (£20k) and reinvest it in my sons SIPP. It has now also dawned on me, and hopefully haven't left it too late , that we could also draw out to the value of my wife's remaining personal tax allowance, although taxed we could claim it back, and do this each year. State Pension will use a lot of her personal allowance when 66, but barring anything happening to me, when she would receive pension using up her personal allowance, we could keep withdrawing, claiming the tax back, and reinvesting in our son's SIPP for him.

Is this a sensible proposal?

Yes. If he has not already bought property you could also consider a LISA for him. He'd get two bites at the cherry: (i) for house purchase, and then (ii) for saving for retirement, with tax-free withdrawals at and after age 60. When you check it you'll see that you/he can contribute up to £4k per annum, and the Treasury adds a 25% bonus.

triplea35 wrote: »

Should we keep investing £2880 per year in my wife's SIPP

If she will eventually be able to draw the money out tax-free: yes, certainly. If not, maybe. Even if she were to pay 20% tax on 75% of the withdrawal, the money is worth 6.25% more in a pension than in (say) an ISA.

By the way, you needn't restrict your wife's drawdown to her "remaining personal tax allowance" in the sense of subtracting the £1,800 from £11,850. If her total taxable income were to consist of £11,850 pension plus £1,800 interest she would still have no tax to pay. (Look up "starting rate for savings".)