Does a SIPP pension really save you that much, if at all, after eventual TAX and charges.

jimlad68

Thanks for those responses and:

apologies if I do not reply promptly to any more comments, bed awaits! and I may only have intermittent internet access for a few days.

Alexland

dunstonh wrote: »

Vanguard doesn't look like it is going to be a SIPP. They are started to refer to it as a personal pension.

I think you are reading too much into this shortened description. They are calling it Personal Pension (SIPP) and their update last month has a graphic with the word 'SIPP' in the middle:

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/retirement/an-update-on-the-vanguard-personal-pension

Alex

Albermarle

my DC from my company also allowed the company to add contributions, and there were no fees.

This is difficult to believe that there were no fees. I have had four employer DC schemes and they all had fees .However the fees structure varies between them and some have no platform fee as such but you pay more for the funds than you would with a SIPP.

Johnnyboy11

Paying into a SIPP can also bring taxable income below the £50k threshold for the Child Benefit Charge (Tax). This can potentially save a higher rate taxpayer a further £20.70 per week for the first child and £13.70 for subsequent children.

Thanks to the introduction of George and Dave's CBT initiative, the wife and I both opened SIPPs and have paid no higher rate income tax since. The Laffer Curve effect, I believe they call it.

Higher earners living in the People's Republic of Scotland will benefit even more from saving in a SIPP (2019/20 rate is 41% above £43,430, ouch!).

dunstonh

Alexland wrote: »

I think you are reading too much into this shortened description. They are calling it Personal Pension (SIPP) and their update last month has a graphic with the word 'SIPP' in the middle:

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/retirement/an-update-on-the-vanguard-personal-pension

Alex

I am reading a lot into it and could end up with 2+2=5 or even 2+2 = 42

However, lets consider a couple of things
1 - FNZ (the software company for Vanguard and many platforms) already has a SIPP coded in its software. Vanguard said they didnt want that and requested a new product to be coded for them.
2 - Why create a SIPP for a couple of dozen funds?

Vanguard has to be acutely away that in the DIY market, the word SIPP is fashionable. So, does it call its pension a SIPP despite not actually being a SIPP or does it manage the name away from SIPP over a period to a name that reflects what it is.

It is going to be interesting to see what they come up with. A master trust scheme offering Vanguard funds would appear to be the cheapest option (this is what many of the lower cost auto-enrolment schemes went with). However, Vanguard are going to want to live trading for their ETFs. I dont think it will be a personal pension as that would be more expensive. You could insure the contract rather than the funds which some platforms have done but they are moving away from that.

There is no real definition of what a SIPP actually is. So, in theory they could call it a SIPP despite it not looking like what most would consider a SIPP to be.

And seeing the number of threads on this site where low knowledge consumers only refer to pensions as SIPP as they know no different, I suppose there is no point getting hung up on its name.

jimlad68

Albermarle wrote: »

This is difficult to believe that there were no fees. I have had four employer DC schemes and they all had fees .However the fees structure varies between them and some have no platform fee as such but you pay more for the funds than you would with a SIPP.

As I worked for 2 large banks, perhaps that is why there were no fees (that I noticed!). As I keep saying check the charges, although often you have no choice.

jimlad68

dunstonh wrote: »

........... However, lets consider a couple of things
1 - FNZ (the software company for Vanguard and many platforms) already has a SIPP coded in its software. Vanguard said they didnt want that and requested a new product to be coded for them.........

From my IT experience (and probably most businesses), once your service provider has you, they think they can charge whatever for "extras", so possibly FNZ were just asking too much so Vanguard decided to do it themselves. Going back "in house" or changing provider and/or product can of course be fraught with problems, just look at TSB banking problems. Perhaps the extra complications of a UK SIPP for a US firm was more than they thought it would be, they would not be the first.
I recollect that some SIPP providers use the services of other SIPP providers, especially when it comes to drawdown.

AnotherJoe

jimlad68 wrote: »

I am just considering the tax benefits of SIPPs (not company pension) and come to some alarming conclusions!


Thats because you've just looked at SIPP (or any other pension type) in isolation and not compared it to what else you'd do with the money.


[1] While working, if I put into my SIPP pension I save tax, but when I retire and take pension, if still on same tax rate, other than the 25% tax free lump sum, I then pay tax I would have paid before, in the meantime (especially for SIPP providers) I would pay various charges (up to 0.45% every year and often withdrawal fees etc), so over many years the 25% tax free lump sum would be greatly eroded.
So worker + taxman lose, SIPP provider gains!
While working, if you put your money into an ISA instead, you would pay various charges, etc. eg, pretty much the same. You have no more need to pay withdrawal fees witha SIPP thn with an ISA. SO, no difference except you get at least a 6.25% tax benefit. At least. YOu shoudl be able to get much better than that.


[2] If I am working, paying higher rate of income tax, and contribute, then when I retire, if I then pay lower rate tax I am quids in.
True yet still many (just look in the mortgage free wannabee forum insist on pating off their mortgages early instead.


[3] If I have finished work and just contribute £2800/3600 (with 20% gov "freeby") a year to SIPP, but then end up paying tax at higher rate, I have lost out majorly.
So worker loses, taxman gains, SIPP provider gains!
That is very unlikely and if it looks like it will happen you can take steps to stop it.


[4] For someone working at 20% tax rate for all or part of their working career, who for whatever reason end up paying higher rate of tax in retirement, lose out majorly.
So worker loses, taxman gains, SIPP provider gains!
That is very very unlikely. Someone who paid tax at 20% when earning, who then pays 40% in retirement?


[5] And then there is the situation whereby if you are not careful and withdraw too much from your SIPP in one tax year, you will pay at a higher rate of tax.


Well then, be careful ! Thats akin to saying "money is quite fragile, if I had a £20 note and put it over a lit match it would burn" Well, dont do that then.


Is my understanding wrong?

Yes. You didn't compare it with what the alternatives are.

• Save non tax free in an unwrapped account.
• Save in an ISA from taxed money.
• Become a landlord and suffer tax at multiple levels.
• Don't save/invest at all and have a poor retirement.
• Maybe something else?

In effect you said "oh there's some tax and costs therefore its bad" without actually doing any maths to see what you'd do with the (less) money you'd put elsewhere instead.

Thrugelmir

Perhaps the fog surrounding certain aspects of Brexit has caused Vanguard to put it's plans on hold.

Thrugelmir

jimlad68 wrote: »

- Reinvestment of income should be similar for ISA or Fund/Share account.

Compounding over many years is where much of the potential return is derived from. Not capital growth. 6% on a sizable six figure sum is worth having.