Which effortless/low cost SIPP for a low earner?

itsmeagain

Hi there! My wife is 55 and earns around 10k per annum as a self-employed part-time dog walker. She also has a deferred DB pension that will be less than 5k/y @ 65.

I (husband) have an active company DB pension (39/60 so far) and also paying into AVC's (actually company DC scheme). This is salary sacrifice and brings me below the 40% income tax threshold. However, I've realised that although I save the tax/NI when paying in, I will be charged 0.75 x 20% tax when taking it out my DC (DB alone will be over 12.5k/y). So, instead of paying more into my AVC/DC, I wonder if it may be best to open a SIPP for my wife to put most of her money in because her pension will be below 12.5k per year when she draws it. Therefore, she'll get the 25% tax boost when paying in and not need to pay 20% tax when drawing it out. We would probably continue to pay in the £2.8k that we think is permitted during early retirement too!

What would be the best low cost SIPP that doesn't require much decision making/management please?
Please let me know if you require further info or I've missed the plot?

dunstonh

What would be the best low cost SIPP that doesn't require much decision making/management please?

Does it have to be a SIPP.  A master trust scheme from a robo provider would be the most effortless.

I will be charged 20% tax when taking it out (pension will be over 12.5k/y). 

It is effectively 15% as 25% tax free and 75% taxable at basic rate equates to 15%.

Are you sure your wife will be a non-taxpayer in retirement?  The DB scheme at state pension (assuming full qualification) would make her a taxpayer (depending on how much less than £5k you are talking about - theoretically £1 p.a. is less than £5k a year!)

itsmeagain

dunstonh said:

What would be the best low cost SIPP that doesn't require much decision making/management please?

Does it have to be a SIPP.  A master trust scheme from a robo provider would be the most effortless.

I will be charged 20% tax when taking it out (pension will be over 12.5k/y). 

It is effectively 15% as 25% tax free and 75% taxable at basic rate equates to 15%.

Are you sure your wife will be a non-taxpayer in retirement?  The DB scheme at state pension (assuming full qualification) would make her a taxpayer (depending on how much less than £5k you are talking about - theoretically £1 p.a. is less than £5k a year!)

Thanks dunstonh.
Totally agree with you on the 'effective' 15% - I was editing it as you were responding!

Although not explicit, the implication of 'less than £5k/y' is that it's more than £4k/y (would total over 12.5k with full state pension). However, we'd intend on taking the money out the new SIPP BEFORE state pension @67.

Correct me if on wrong please.... I 'think' that my wife would be a non-tax payer whilst drawing the SIPP because we'd intend on taking all her new SIPP pension out at below £12.5k/y + 25% allowance BEFORE her full state pension comes in 67. The new SIPP or a master trust (when i look it up), is mainly to give a 25% boost by paying the next few years income into a SIPP and taking it later to bridge the gap between retiring at say 60 and state pension at 67.

xylophone

https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/personal-pension-account?cmpgn=PS0220UKBABSP0001EN&s_kwcid=AL!11156!3!419938357640!e!!g!!vanguard pension&gclid=EAIaIQobChMIxIz-ivWs7QIVDrrtCh2lnAHEEAAYASAAEgJ_lfD_BwE&gclsrc=aw.ds
might suit.

itsmeagain

xylophone said:

https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/personal-pension-account?cmpgn=PS0220UKBABSP0001EN&s_kwcid=AL!11156!3!419938357640!e!!g!!vanguard pension&gclid=EAIaIQobChMIxIz-ivWs7QIVDrrtCh2lnAHEEAAYASAAEgJ_lfD_BwE&gclsrc=aw.ds
might suit.

Thanks - I did read the MSE guide and it said that Vanguard don't do drawdown. Looks like the guide needs updating.

garmeg

itsmeagain said:

xylophone said:

https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/personal-pension-account?cmpgn=PS0220UKBABSP0001EN&s_kwcid=AL!11156!3!419938357640!e!!g!!vanguard pension&gclid=EAIaIQobChMIxIz-ivWs7QIVDrrtCh2lnAHEEAAYASAAEgJ_lfD_BwE&gclsrc=aw.ds
might suit.

Thanks - I did read the MSE guide and it said that Vanguard don't do drawdown. Looks like the guide needs updating.

They have only just recently added a drawdown facility - this week I think.

xylophone

Vanguard don't do drawdown.

https://www.vanguardinvestor.co.uk/investing-explained/using-your-pension-money

Yes - it's now available.

Albermarle

Your plan seems fine as long as you still can salary sacrifice down to the point where you pay no 40% tax . The overall tax benefit of 40% tax relief is greater than your OH getting basic rate relief and not paying tax .
This is a new and very simple pension https://www.legalandgeneral.com/investments/pensions/