50 years old. Can save for 5 years. SIPP, ISA S&S or other?

Elika0215

As the title says.

The other factor is this: Assuming I'm prepared to risk, say about risk level 3 on a scale of 10 (10 being highest) a lump sum of say, £10k - but also want to have the flexibility of withdrawing it all at 55 dependent on circumstances, should I look at putting it in to a SIPP or other investments?

Also, assume I've maxed out 5% current accounts by the way.

I understand that 25% lump sum can be withdrawn tax free at 55 but would the SIPP lose a lot of the benefit (overtaken by say a S&S ISA) should the total pot be withdrawn at 55?

Thanks - as always, thoughts and questions welcome.

Dazed_and_confused

SIPP and ISA are wrappers and the money contributed can usually be invested in the same funds.

If you contribute to a SIPP and intend taking the whole lot in one go at 55 a lot will depend on what other taxable income (and the type of income) you have in that tax year.

And of course what changes any chancellor makes between now and then.

You may pay no tax on the whole lot* but you could have to pay 40%+.

* In 2019:20 someone could withdraw £16,666 and in theory not be liable to any tax, 25% TFLS and the balance covered by the Personal Allowance

Elika0215

Dazed_and_confused wrote: »

SIPP and ISA are wrappers and the money contributed can usually be invested in the same funds.

If you intend taking the whole lot in one go at 55 a lot will depend on what other taxable income (and the type of income) you have in that tax year.

And of course what changes any chancellor makes between now and then. You may pay no tax on the whole lot but you could have to pay 40%+.

Thanks. In answer to your questions/points;

20% tax payer and absolutely no chance of reaching 40% income tax rate. Salary in the region of £15k and minimal other income.

I don't intend to take the pot at 55 but just want the option.

As for the chancellors decision. I figure I can't predict it so will overlook that for now (or is that making a potentially big mistake?).

Let me know if there's any other info that I need to factor in if that's ok.

Dazed_and_confused

Well with an ISA you get no tax relief when you pay it in but money taken out is tax exempt.

SIPP gets basic rate tax relief added to your pension fund (so £10k you contribute becomes £12.5k in the fund) but if you are still earning £15k you are likely going to pay 20% tax on any taxable element of a withdrawal.

bluenose1

Can you pay voluntary additional pension contributions via your salary? And if so does your employer offer salary sacrifice?
If so would be worth considering.

Elika0215

bluenose1 wrote: »

Can you pay voluntary additional pension contributions via your salary? And if so does your employer offer salary sacrifice?
If so would be worth considering.

Unfortunately not. It's the LGPS scheme so they don't have the option of tax free withdrawals at 55

Thrugelmir

Elika0215 wrote: »

I don't intend to take the pot at 55 but just want the option.

How would you feel if the markets were to dip at that time? Value of investments fluctuates. Just like the weather.

Elika0215

Thrugelmir wrote: »

How would you feel if the markets were to dip at that time? Value of investments fluctuates. Just like the weather.

I accept that's a risk and there's no guarantee. Having posted loads on here, I know that I'll definitely loose money due to inflation if I don't invest.

Ultimately, if in the example, I invest £10k, find out I need all the money at 55 but it's only worth £8k then it'll still be 8k which will help.

Albermarle

There is a small financial advantage to the SIPP vs the ISA due to the tax issue. I think it is 6.25%.
The downside is that you can't touch the sipp money until your are 55.
Assuming investment in similar funds in each then then it is your decision to make.

bluenose1

If you invested £8k, it would be topped up to £10K.
Then when you came to withdraw it you do not pay tax on 25% of your pot, therefore even if you had to pay 20% tax on the rest you would get £8,500 for your initial £8k investment.

My understanding of the small pot rules means you can have 3 pension pots up to £10k which you can withdraw without restricting future pension contributions.
If rules don't change I am going to do this just before the age of 55.

Elika0215

Albermarle wrote: »

There is a small financial advantage to the SIPP vs the ISA due to the tax issue. I think it is 6.25%.
The downside is that you can't touch the sipp money until your are 55.
Assuming investment in similar funds in each then then it is your decision to make.

Thank you. So, if the SIPP or ISA were in exactly the same fund (with exactly the same fees) and I withdrew the lot at 55, then it would be worth around the 6.25% more from the SIPP. Have I understood that correctly?

bluenose1 wrote: »

If you invested £8k, it would be topped up to £10K.
Then when you came to withdraw it you do not pay tax on 25% of your pot, therefore even if you had to pay 20% tax on the rest you would get £8,500 for your initial £8k investment.

My understanding of the small pot rules means you can have 3 pension pots up to £10k which you can withdraw without restricting future pension contributions.
If rules don't change I am going to do this just before the age of 55.

Thank you. So, I can have a total of 3 £10k small pots which I can withdraw at 55, 56 and 57 (or anytime) without it affecting future contributions. Hope I've understood that right.

If the pot is worth more than £10k, can I withdraw £10k and shift the balance to another pension or can the total pot not exceed £10k?