SIPP vs ISA vs Workplace Pension

adavb

Greetings,

I am 48 and have several investments - nothing large unfortunately.
SIPP (Fidelity): £35k
ISA -stocks & shares (Fidelity): £36k
Pension (Aviva): £10k
A few other private investments...and some cash saving

I've just started working for a new employer and opted in to their group plan which will be 5% personal + 2% company contributions. This will be with a new provider. Basic salary is £55k.

I also make monthly payments into my ISA (£300). I view this as part of my retirement since I have the following advantages:
- Tax free savings;
- I can access anytime if I need the cash without tax implications.
I actively manage both the ISA and SIPP. These both have a medium risk spread across multiple funds.

My question:
Should I be investing more into the SIPP / Company pension rather than the ISA? The company won't pay more than 2%?
If I invest more into the SIPP, how will I realise tax benefits since this will be paid from my personal current account after net salary has cleared? Are there any other advantages?

Thanks in advance
:think:

Dazed_and_confused

In a full tax year where your taxable salary (P60 figure) is high enough that you have been paying some higher rate tax then you can tell HMRC about the SIPP contributions and these increase the amount of basic rate tax you can pay, reducing the amount of higher rate tax payable.

In simple terms you could get an additional 20% back by turning some tax payable at 40% into tax payable at 20%.

Are you part of a family claiming Child Benefit?

AnotherJoe

adavb wrote: »

Greetings,

I am 48 and have several investments - nothing large unfortunately.
SIPP (Fidelity): £35k
ISA -stocks & shares (Fidelity): £36k
Pension (Aviva): £10k
A few other private investments...and some cash saving

I've just started working for a new employer and opted in to their group plan which will be 5% personal + 2% company contributions. This will be with a new provider. Basic salary is £55k.

I also make monthly payments into my ISA (£300). I view this as part of my retirement since I have the following advantages:
- Tax free savings;
- I can access anytime if I need the cash without tax implications.
I actively manage both the ISA and SIPP. These both have a medium risk spread across multiple funds.

My question:
Should I be investing more into the SIPP / Company pension rather than the ISA? The company won't pay more than 2%?
If I invest more into the SIPP, how will I realise tax benefits since this will be paid from my personal current account after net salary has cleared? Are there any other advantages?

Thanks in advance
:think:

ISA savings is only tax free upon withdrawal. If you put £100 in your ISA, then as a higher rate taxpayer you earned about £200 to get that. So it's cost you £100 in tax. (You'll lose 40% tax plus some NI so roughly £100). So when you say you can withdraw it tax free that's really because youve already paid the tax in advance !
If you put that £100 in a SIPP then the SIPP provider will claim back the 20% tax automatically which bumps the sum up to £125 (because £125 - 20% = £100). When you claim the £125 contribution on your tax return, HMRC will refund £25 to you, meaning the £125 in your SIPP cost you £75.
Assuming as a retired person you are paying 20% tax, when you withdraw the £125, 25% is tax free and the remainder is at 20% tax so that's roughly £106 you get that cost you £75. Which is equivalent to £100 paying you £141. That's a lot better than the £100 you'd get out of your ISA.
If you put your money into the company pension the calculations are the same except you just don't pay the tax in the first place, don't need to claim it back via tax return and if the company does salary sacrifice you don't pay the NI tax either so you'll get about 12% back on top.

atush

I'd up your pension as your provision is VERY low for your age, to at least take you out of HRT alltogether. Any money ledft after that can be S&S isa or split between ISA/Sipp. You are only 7 years off being able to take money from your pension should the need arise.

Do you have a spouse? Their pension arrangements?

BLB53

As a HR tax payer, pay more into SIPP or company scheme to get the tax relief. Also divert £300 from ISA to SIPP for reasons explained above.

Spreadsheetman

atush wrote: »

I'd up your pension as your provision is VERY low for your age, to at least take you out of HRT alltogether. Any money ledft after that can be S&S isa or split between ISA/Sipp. You are only 7 years off being able to take money from your pension should the need arise.

Do you have a spouse? Their pension arrangements?

+1. Time is getting short to build a substantial pension and the OP is getting close to their 50's when employment gets much less secure and well-paid jobs harder to find.

Time to start planning really seriously. State pension will be at 67, won't be huge (£8,546 current full SP) and there is a lot that can happen to derail a career before getting there.

dunstonh

Pension trumps ISA (assuming you need the money post age 58) even if you are basic rate taxpayer. If you are higher rate then it walks all over it.

Your current retirement provision is at a level you expect a 38 year old to have. So, you are behind (if you ignore the ISA).

Every £100 you pay into the ISA has cost you £100. Every £100 your pay into the pension has cost you £60. Use higher rate relief whilst you still can.

FatherAbraham

adavb wrote: »

I also make monthly payments into my ISA (£300). I view this as part of my retirement since I have the following advantages:
- Tax free savings;
- I can access anytime if I need the cash without tax implications.

If you can access the capital at any time, then it's not part of your retirement savings.

Retirement savings are fettered assets, whether technically accessible or not. In your tax bracket, you're paying a massive cost for the option to take that money now.

Your ISA is locking in your 40% tax rate forever, and you should be raiding it to load your pension with tax-relieved funds. ISAs are poisonous for low-end higher-rate taxpayers like you.

kidmugsy

FatherAbraham wrote: »

Your ISA is locking in your 40% tax rate forever, and you should be raiding it to load your pension with tax-relieved funds. ISAs are poisonous for low-end higher-rate taxpayers like you.

OP, The Good Father is right. Make sure you have a sensible amount of emergency savings in cash, and then contribute enough into a pension to avoid all your 40% tax. If £300 p.m. doesn't do the trick use money from your ISAs or your mysterious "other private investments".

As a wrinkle, in your shoes I might used the monthly surplus in a regular saver to earn me 5% AER, and use the capital for the pension. But that's probably just a bookkeeping matter.

Your first move would be to estimate your expected income for the tax year 18/19. Will it be £55k or less - given that your earnings will have come from two different jobs?

adavb

Dazed_and_confused wrote: »

In a full tax year where your taxable salary (P60 figure) is high enough that you have been paying some higher rate tax then you can tell HMRC about the SIPP contributions and these increase the amount of basic rate tax you can pay, reducing the amount of higher rate tax payable.

In simple terms you could get an additional 20% back by turning some tax payable at 40% into tax payable at 20%.

Are you part of a family claiming Child Benefit?

Yes I am.
Thanks you - I will be taking your advice.

adavb

atush wrote: »

I'd up your pension as your provision is VERY low for your age, to at least take you out of HRT alltogether. Any money ledft after that can be S&S isa or split between ISA/Sipp. You are only 7 years off being able to take money from your pension should the need arise.

Do you have a spouse? Their pension arrangements?

My Spouse works for NHS and has is part of their pension scheme. She does not have an additional SIPP,