Auto-enrollment verses SIPP

maxbuddy21

my husband has an excellent final salary pension with his previous job, that he will access at 60 and we are leaving it well alone. As well as that he has 170k (accured from a redunancy package) in a SIPP.   He left his previous employer and his pension  is frozen until he retires.      He has a new job and in an auto enrollent pension, paying 4% of his salary and his employer paying 4%. he has only accured £8000 over four years and we were wondering should he transfer this amount now into his SIPP and let it grow and contribute the monthly auto-enrollment amounts into his SIPP instead?   He only has 8 years until retirement.  We know we will get 20% tax allowance amount on topp on each SIPP contribution. we also know about drawdown and taking 25% take free and the rest taxed at his taxable allowance rate once he accesses his SIPP.      We think the SIPP, which is invested in stocks and shares, is doing better and we is making more money that way. What would you advise? Transfer the £8k now into his SIPP and start contributing his monthly auto-enrollment amount every month and get the tax free allowance with it ie 20% on every amount invested.   which is better, auto-enrollment or a SIPP?

Albermarle

Most employers will only make contributions to their chosen workplace scheme , so you would have to check this first.
Plus pension transfers do not attract any further tax relief , you can not have two bites at the apple.
Second do you know how your husbands contributions are taken now; by salary sacrifice ; by net pay or by relief at source ?

We think the SIPP, which is invested in stocks and shares, is doing better and we is making more money that way. 

Presumably the workplace auto enrolment pension is also invested in the markets ? 

83705628

You won't get any extra tax relief by transferring from his current works pension to a SIPP, you got the tax relief on the way in.
"We think the SIPP, which is invested in stocks and shares, is doing better and we is making more money that way." This is short-term thinking but yes, potentially true over the long-term depending on how the £8k is invested.
If he's confident managing the SIPP then go ahead, but the real reason to do this is convenience and control, you shouldn't do it just because you expect higher returns if you manage the money.
Check if there are any other benefits, rights, entitlements, protections etc. With the £8k before transferring to a SIPP, and any costs/charges/fees/expenses for transferring out.

neilnockie

tcallaghan93 said:

You won't get any extra tax relief by transferring from his current works pension to a SIPP, you got the tax relief on the way in.
"We think the SIPP, which is invested in stocks and shares, is doing better and we is making more money that way." This is short-term thinking but yes, potentially true over the long-term depending on how the £8k is invested.
If he's confident managing the SIPP then go ahead, but the real reason to do this is convenience and control, you shouldn't do it just because you expect higher returns if you manage the money.
Check if there are any other benefits, rights, entitlements, protections etc. With the £8k before transferring to a SIPP, and any costs/charges/fees/expenses for transferring out.

It doesn't matter whether its a SIPP or auto enrolment. 
The tax relief you get depends on how smaer your IFA and tax advisor are.

mgdavid

In general, the more diverse your pensions the better protected you are against the unexpected, so why not do both? Keep the worplace pension for the free money (employer's contribution) and add what you can without scrimping to the SIPP.

kinger101

It's unlikely the employer will make any contributions to a SIPP in lieu of payments into scheme they've provided.  Additionally, you may well be benefiting  from a National Insurance saving if pension scheme is operated by salary sacrifice.  It sounds from the numbers like your husband is a basic rate taxpayer, in which case the NI saving outweighs the income tax saving.  

If your husband doesn't like the employer scheme, there is the option of periodically transferring out the balance into the SIPP.  In the meantime, he might want to find out how his employer scheme is being invested.  A default safe-ish option is usually selected unless an instruction to the contrary is given.  He might be happier to take riskier options if his FS scheme provides a decent stable income.

Brynsam

neilnockie said:

tcallaghan93 said:

You won't get any extra tax relief by transferring from his current works pension to a SIPP, you got the tax relief on the way in.
"We think the SIPP, which is invested in stocks and shares, is doing better and we is making more money that way." This is short-term thinking but yes, potentially true over the long-term depending on how the £8k is invested.
If he's confident managing the SIPP then go ahead, but the real reason to do this is convenience and control, you shouldn't do it just because you expect higher returns if you manage the money.
Check if there are any other benefits, rights, entitlements, protections etc. With the £8k before transferring to a SIPP, and any costs/charges/fees/expenses for transferring out.

It doesn't matter whether its a SIPP or auto enrolment. 
The tax relief you get depends on how smaer your IFA and tax advisor are.

No, the tax relief on pension contributions has nothing to do with 'how smart' anyone is.

OP, if your husband isn't happy with the fund performance of his auto-enrolment pension, has he checked to see if there are any alternative options within the scheme?

BTW, his previous pension isn't frozen. If it's a final salary scheme, it will revalue (increase) between the time he left and the time he starts to draw his benefits. If it's a defined contribution scheme, the funds will remain invested and move up (or down!), depending on the particular funds in which his savings are invested.

AnotherJoe

He would be crazy to duck out of auto enrolment and forgo the employers matching contribution. That is equivalent to a guaranteed 100% gain in his contribution and it would be more if it's done by salary sacrifice. 

He might be able to move what's in there already to his SIPP (but keep on contributing to the employers scheme) but unless something kooky is going on his employers pension will also be invested in the stock market. Check what funds are available in the employers scheme and change them if he has the ability.
You say you know about the 20% the taxman adds to a SIPP (but that's to all pensions nit just SIPPs) but you forgot the 100% his employer is adding to the employers scheme ! 
The fact he's oniy added £8k is almost certainly just a consequence of the low amounts he's adding unless the employers funds are really poor if for some reason he's invested ina really bad one, like say a cash one. Do you know what it's being invested in?
And as Brysnam says you don't get to have your cake and eat it, so moving the money from one pension to another doesn't give you a 25% uplift or we'd all be doing it every week ! And he could if he wanted add more to a SIPP if he thinks the funds available are all poor. But he should always take the employers matching 4% which means staying in the scheme. 

Albermarle

neilnockie said:

tcallaghan93 said:

You won't get any extra tax relief by transferring from his current works pension to a SIPP, you got the tax relief on the way in.
"We think the SIPP, which is invested in stocks and shares, is doing better and we is making more money that way." This is short-term thinking but yes, potentially true over the long-term depending on how the £8k is invested.
If he's confident managing the SIPP then go ahead, but the real reason to do this is convenience and control, you shouldn't do it just because you expect higher returns if you manage the money.
Check if there are any other benefits, rights, entitlements, protections etc. With the £8k before transferring to a SIPP, and any costs/charges/fees/expenses for transferring out.

It doesn't matter whether its a SIPP or auto enrolment. 
The tax relief you get depends on how smaer your IFA and tax advisor are.

Spam/troll alert with Neilnockie !

maxbuddy21

Thank you everyone.  He is staying in his employers scheme. Much appreciated