Starting a pension at age 60

MailleP

Better late than never?

Neither I (age 55, UK national) nor my wife (age 60, not EU/UK national but UK resident with indefinite leave to remain) have any pension provision beyond the minimum UK state pension. (Before the arrows fly, there are valid reasons – e.g. a long time ago I was diagnosed with an uncurable disease, expected lifespan 50, so I'm on borrowed time. We also heard horror stories from friends who retired abroad and either lost pension rights, or found they were not index-linked so ended up worthless.)

Now, however, things seem stable so we're wondering what do with our savings, around GBP 48,000 (we also have a house, and a company which pays us a minimal 8K wage plus some dividends). My inclination is to keep my 24K 'accessible' (in a Stocks & Shares ISA, mainly tracker funds) in case my health rapidly deteriorates; conversely, we're debating whether her 24K should go into a similar ISA, a SIPP, both, or what.

Having never seriously looked into pensions before now, my understanding is limited – it's simply based on a couple of hours looking through MSE. :-) So please forgive the newbie questions.

Am I right to think she could choose a SIPP (with e.g. Hargreave Lansdowne), pay in 24K, the government would add 6K shortly afterwards, and she could then tap into 25% of that 30K (so 7.5K) at any age she chose, with the remaining 22.5K (ish, rising or falling with the investments) staying invested, or providing an annuity (whose figures would be based on her life expectancy), or income drawdown? So the pro would be 6K tax-free, but the con would be having to tie up the remaining funds for several years?

And am I right to think that the SIPP would be protected by FSCS? Websites seem to offer conflicting advice, e.g. moneyobserver.com/guides/fscs-ps85000-limit-beginners-guide says "investments are also covered... up to 50K [but] investment trusts... are not covered", moneysavingexpert.com/savings/cheap-sipps says “if you put money in stocks and shares or funds (that invest in them), you've got a risk-based investment, NOT savings”, yet moneysavingexpert.com/savings/safe-savings says "if you... choose to invest in stock market funds... 100% of the first £85,000 is covered”. It's confusing...

Conversely, if she chose to invest just in a Stocks & Shares ISA, the money would be accessible at any time, should retain its value thanks to the tracker funds, and should also be protected by FSCS (subject to the confusion above...), right? So the pro is instant accessibility, and the con is no tax-free bonus from HMRC?

Maybe the best way to balance the pros & cons is to do half in a SIPP, half in an ISA? Am I missing anything important?

Finally, am I right that it should be fairly easy to set up an Excel sheet (with sample figures, e.g. guessing that inflation will be 2% and the SIPP & ISA investments both return 3%) to work out how much she'd actually have available with each of the options, at age 65, 70, 75...?

Sorry for the multiple questions, but many thanks in anticipation!

Dox

Plenty of general info, plus the chance to contact direct for a free, impartial chat/general guidance: https://www.pensionsadvisoryservice.org.uk

Also useful and offers a face to face meeting: https://www.pensionwise.gov.uk/en

Your wife can't contribute more than she earns to a SIPP - but (provided it can 'afford' to do so) your company could make a contribution on her behalf which exceeds her earnings from the company. 

MailleP

Dox said:

Your wife can't contribute more than she earns to a SIPP - but (provided it can 'afford' to do so) your company could make a contribution on her behalf which exceeds her earnings from the company.

Thanks - a useful hint, which then took me to ttps://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company which confirms "if you take a small salary and a large dividend from your company, your pension tax relief limit will be low" but then continues, "your company can save up to 32.8% by paying directly into your pension (rather than in the form of a salary)". This makes me think I'll need to research the Ltd side a bit more (the savings aren't likely to be as high as suggested, because we pay ourselves between the Lower Earning Limit and Primary Threshold, i.e. no NI gets charged in any case). Then I'll ask our company's accountants for advice, in addition to having a chat with PensionWise/PAS (which were already on my radar - but I thought it advisable to get some tips here first). Much appreciated.

xylophone

Have you both obtained state pension forecasts?
https://www.gov.uk/check-state-pension

MailleP

xylophone said:

Have you both obtained state pension forecasts? ttps://www.gov.uk/check-state-pension

Yes - both around 165/wk, payable in a decade if we continue contributing for a few more years. So nothing to write home about. ;-)

xylophone

Yes - both around 165/wk, payable in a decade if we continue contributing for a few more years. So nothing to write home about. 

Remember that the amount will increase under (at the moment) the "Triple Lock".

And if you were both of an  age to draw it now, an extra £17,000 a year between you could come in useful, no?

Albermarle

So the pro would be 6K tax-free, but the con would be having to tie up the remaining funds for several years?

Not quite right . The clear and obvious pro is yes that you gain tax relief on 100% on the way in and get 25% tax free on the way out . The remaining 75% can be taken out any time and does not have to remain tied up ( drawdown). It is taxable income but whether she actually gets taxed or not, depends on her other income and how quickly she takes the 75%.

If she could take out just enough each year to remain under the £12,5K personal allowance , then the gain is much better than any ISA investment. 

MailleP

Albermarle said:

f she could take out just enough each year to remain under the £12,5K personal allowance , then the gain is much better than any ISA investment. 

Interesting. Putting this together with xylophone's post above (that the state pension is 8.5K/y, indeed quite a 'useful' sum), does this mean that without any other taxable income, she'd be able to draw 4K per year from the pension pot tax-free? I'm assuming (maybe incorrectly) that the state pension 8.5K would be taxable.

Dazed_and_C0nfused

State Pension is taxable.  So if that was £8.5k it would leave £4k of unused Personal Allowance.

But this will fluctuate.  If the Personal Allowance remains unchanged in the budget then the 2020:21 State Pension of £8.9k (updated from your £8.5k for the new tax year) only leaves £3.6k unused Personal Allowance.

This assumes your wife hasn't applied for Marriage Allowance.