Topping up a pension with an SIPP, how much to contribute?

J89eu

Reading the title I guess I'd just get responses of "Half your age!" but please do read on!

My other half who is 35 has the workplace pension, that's it. She has been paying in since it was mandatory for companies to have it so that's 5% monthly as of Jan 2018 I believe. I understand it goes up to 8% this month but we want to go further, we can afford to put more aside, probably into a SIPP. The question is how much?

I'd think she'd need 17.5% total so is it as simple as 8% Workplace pension and then 9.5% into a SIPP? Or do we need to think about tax of some sort?

lisyloo

Does her employer operate salary sacrifice?
Do they pass on any employers NI savings?
Can she contribute more to the workplace scheme? (If it’s a good scheme that might mean lower charges than having an additional SIPP).

Pensions are a great long term investment, but you do need to be aware that you cannot get at the money before 55 (and there are plans to increase that age) if you fell on hard times or say wanted to invest in a business.
There has to be a balance therefore between this and more available sources of funds.

17.5% is a pretty good level of contribution.
If you can afford more and want to retire before 68 then you could put more in, but do balance that with available funds and also enjoying your lifestyle now.

20% of us won’t make retirement.
I’m planning some nice scuba diving holidays to exotic locations but I’m pretty sure I won’t be up to it when I’m 75, so there has to be a balance.

Find out whether it’s salary sacrifice I.e. includes employees NI and even employers NI.
If it does then I would look to increase the workplace pension and not get an additional SIPP where you won’t get any NI savings.

NoMore

The half your age 'rule' is just a guide and a simple illustration to show the younger you start, the less per month you need to contribute to end up at the same point. Its not much use beyond that.


Contribute what you think you can afford and need to achieve your life goals. Not what some silly rule that's only a simple illustration rather than a must follow religiously law.


If your contributions become large then you may have to be wary of both the Annual Allowance or/and the Lifetime Allowance but out side of that, contribute what you can afford for your desired outcome.

J89eu

I will ask her to find out about these questions, though I doubt they do anything helpful as they were reluctant to even set up the workplace pension!

dunstonh

Reading the title I guess I'd just get responses of "Half your age!" but please do read on!

No-one should be relying on the half your age guide. It is a crude figure just to get people understanding the sort of ballpark figure they should be looking at. Too many pay £50pm into a pension and tick the "pension done" box.

Attitude to investment risk, age of retirement, spending habits, state pension qualification etc all have an impact. Some need more than half their age. Some need less.

The question is how much?

How much would achieve your target income in retirement?

I'd think she'd need 17.5% total so is it as simple as 8% Workplace pension and then 9.5% into a SIPP? Or do we need to think about tax of some sort?

If you have calculated that 17.5% is the requirement to provide your target net income in retirement, then that would likely mean gross total contribution.

J89eu

17.5 was based off the half your age idea but I'm not sure if that's what we need, she's on target to get what I think we'd need IF the state pension continues to be a thing, but who knows, we'd also like to retire before 67. Without the state pension she'd need to put in almost all her earnings to meet 1k a month!

lisyloo

J89eu wrote: »

17.5 was based off the half your age idea but I'm not sure if that's what we need, she's on target to get what I think we'd need IF the state pension continues to be a thing, but who knows, we'd also like to retire before 67. Without the state pension she'd need to put in almost all her earnings to meet 1k a month!

I think her state pension age is 68

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/310231/spa-timetable.pdf

If she retire before state pension age then she won’t be receiving any (sorry if I’m stating the obvious) so will have to provide her entire income.

J89eu

So I'm coming back to this as I'm still a bit confused, particular with these questions:

lisyloo wrote:

Does her employer operate salary sacrifice?
Do they pass on any employers NI savings?
Can she contribute more to the workplace scheme? (If it’s a good scheme that might mean lower charges than having an additional SIPP).

She works in a very small business so I'm certain she wouldn't get any of the first 2 things.

She has the Nest Workplace Pension:
https://www.nestpensions.org.uk/schemeweb/nest.html

She can add more to the pension through the Nest online account including via Direct Debit and I saw this when checking that out:
"Our records show you’re eligible for tax relief. We’ll collect this on your behalf and add it to your contributions. If our records are incorrect and you’re not eligible for tax relief please update your status. This can be done by clicking My details at the top of the page and then going to Edit your profile. Please update your status before making an additional contribution."

Though I'd imagine this is not invested as well as say the Vanguard FTSE Global All cap index which is what I'd advise she would invest the SIPP in. She can also change to a higher risk investment pot on that Nest fund so perhaps she should also do that? There's !!!!!! all in it to lose as it stands!

lisyloo

I wouldn’t be so certain about the salary sacrifice.
It can save employers money too I.e. 13.8% employers national insurance which is why companies often offer it.
Is it too hard for her to ask?
If it’s a very small business there can’t be that many people to ask.

J89eu

I will get her to ask, she tends to hate asking those sorts of questions as she is not British so she has the opinion that everyone is against her for trying to take advantage of the stuff she's entitled to as a NI contributor for 12 years! She's wrong of course but she still refuses to sign up to some stuff due to the stigma!

Albermarle

She can also change to a higher risk investment pot on that Nest fund so perhaps she should also do that?

Normally when you are many years away from retirement , it is advised to invest mainly in higher risk/higher potential return funds. So would make some sense for her to go to the higher risk fund in NEST.