Paying into SIPP from ISA...Good idea..?

Ciprico

For someone over 55, who is very unlikely to be bothered by the LTA, is there any drawback in paying the maximum permissible into SIPP from ISA. 
I can see the immediate 6% SIPP benefit (25% pension tax free) benefit..
the same investments are available in both SIPP and ISA. (basic trackers and ITs in Interactive Investor)
I am already paying the max in Salary Sacrifice
I realise there are costs in selling and re-buying investments.
Currently employed, but situation a little shakey, would probably expect to retire in 2-3 years of the job last that long !
Are there other considerations I have missed...?
Thanks

AlanP_2

What is the max in SS - down to national mimimum wage?

Pension beats ISA due to the 6.25% bonus on tax in / tax out so fundamentally a good idea providing you are happy to lock it away.

cloud_dog

123mat123 said:

I am already paying the max in Salary Sacrifice

Do you mean £40k pa?

dunstonh

Paying into SIPP from ISA...Good idea..?

When it is suitable yes it is.  I have done it many times.

I realise there are costs in selling and re-buying investments.

Only if you are using assets that have a cost on buying and selling.  Most investors would not be using those sorts of assets and would not incur charges.  The worst thing is really being out of the market for a few days whilst you bed & pension.

Ciprico

I am paid about £30k + SS £24k
Pretty much all I take home gets spent,  so I am not looking to increase SS even if I can,
 but I think I am very near max anyway (minimum salary) ?
Plus I would find it hard to persuade employer to tweak this...

squirrelpie

dunstonh said:

Only if you are using assets that have a cost on buying and selling.  Most investors would not be using those sorts of assets and would not incur charges. 

Eh? Are you suggesting that most people do not use shares and other exchange-traded instruments that have stamp duty and transaction costs and also do not use funds that mostly have bid-offer spreads?

Bemma

Use your salary sacrifice.  The often talked about 6.25% uplift is for people without SS.  It's at least 25% uplift for you.  Supplement your income from your ISA, but SS ALL you pension contributions for the additional NI bonus.

 

• £1 gross into pension costs 0.68p  (20% and 12% NI at the salary you mention above)
• Equivalent to 47% uplift going into pension.
• When drawing down get 85% of that (allowing for 25% tax free)
• 1.47 * 0.85 = 1.25 net on the way out.
• So 25% benefit, not the often mentioned 6.25%

 

You have plenty of headroom allowing for minimum wage and £40k annual allowance.  Withdraw from you ISA to supplement you're income if it is too low because of extra SS.  But make sure your pension payments are done through SS.

"Plus I would find it hard to persuade employer to tweak this..."  -  Really?  It saves your company money too.  For 25% uplift I would ask.  You have about £9k net (£13k gross) per year headroom, before NMW.

 

This is also worst case for you.  If your employer gives you any of their 13.8% NI contributions (I get 7%), the figures are even stronger in your favour.

dunstonh

Eh? Are you suggesting that most people do not use shares and other exchange-traded instruments that have stamp duty and transaction costs and also do not use funds that mostly have bid-offer spreads?

Correct.  Most consumers either use insured pension funds or unit trusts and OEICs.   

squirrelpie

dunstonh said:

Correct.  Most consumers either use insured pension funds or unit trusts and OEICs.   

Most, if not all, unit trusts have bid-offer spreads, no? And OEICs may have swing prices?

Ciprico

Bemma said:

Use your salary sacrifice.  The often talked about 6.25% uplift is for people without SS.  It's at least 25% uplift for you.  Supplement your income from your ISA, but SS ALL you pension contributions for the additional NI bonus.

 

• £1 gross into pension costs 0.68p  (20% and 12% NI at the salary you mention above)
• Equivalent to 47% uplift going into pension.
• When drawing down get 85% of that (allowing for 25% tax free)
• 1.47 * 0.85 = 1.25 net on the way out.
• So 25% benefit, not the often mentioned 6.25%

 

You have plenty of headroom allowing for minimum wage and £40k annual allowance.  Withdraw from you ISA to supplement you're income if it is too low because of extra SS.  But make sure your pension payments are done through SS.

"Plus I would find it hard to persuade employer to tweak this..."  -  Really?  It saves your company money too.  For 25% uplift I would ask.  You have about £9k net (£13k gross) per year headroom, before NMW.

 

This is also worst case for you.  If your employer gives you any of their 13.8% NI contributions (I get 7%), the figures are even stronger in your favour.

Thank you for this breakdown. 
I didn't know how the nmw limit was calculated. I will look into increasing ss.

dunstonh

squirrelpie said:

dunstonh said:

Correct.  Most consumers either use insured pension funds or unit trusts and OEICs.   

Most, if not all, unit trusts have bid-offer spreads, no? And OEICs may have swing prices?

Most UTs have little or no bid/offer spread nowadays and OEICs dominate and they are single priced.