SIPP Strategy advice

HamAndCheese

I am in the process of working out the optimal SIPP investment strategy for dividing payments between myself and my spouse.

I earn in the 40% tax bracket and my wife earns in the 20% bracket. I already make payments around 13% to a DB pension. Our incomes are pretty variable year on year but I rarely drop below £50k and my spouse below £14k

I am already using my ISA allowance every year.

Does our plan sounds reasonable?

1. Initially we pay available income into my own SIPP until it equals my pay that is liable for the 40% banding.

2. Then we pay available income into my spouses SIPP until it reaches the total income for the year.

3. Any more income then goes into my SIPP again.

I am hoping this achieves the most efficient use of capital, provides my spouse a pension and doesn't risk me going over the Lifetime allowance.

Is there anything else I should be considering do you think?

Thanks in advance!

HamAndCheese

Apologies - to clarify both of our ISA allowance's are used up every year.

Dazed_and_C0nfused

Can your wife afford to contribute £14k gross each year?

HamAndCheese

Dazed_and_C0nfused said:

Can your wife afford to contribute £14k gross each year?

Yes, almost certainly but is not guaranteed.

zagfles

Yes, have you worked out your position wrt the annual allowance?

HamAndCheese

zagfles said:

Yes, have you worked out your position wrt the annual allowance?

Hmm... glad you mentioned that. My DB pension and my SIPP will both go towards the annual pension contributions allowance then?

HamAndCheese

zagfles said:

Yes, have you worked out your position wrt the annual allowance?

Does my state pension contribution also count towards my annual allowance? I have read around it most places seem to suggest it does not.

zagfles

Yes, with a DB pension it's the increase in value of the pension that counts towards the "pension input amount", which is tested against the annual allowance, it's nothing to do with actual contributions. With a DC pension like a SIPP it's the gross contributions that counts. You can ask the scheme for the PIAs for the previous tax years to get an idea, but note this can vary a lot due to inflation and if it's a final salary scheme, a payrise can cause a massive PIA. You can carry forwards unused AA from previous 3 tax years.

State pension is ignored.

HamAndCheese

Thanks zagfles.

This is tricky because with the DB pension it is difficult to know ahead of time exactly how much of your AA it will take. It is possible to know retrospectively and contribute to the SIPPS then but then you miss out on the growth within the SIPP until you can get the money in.

Is there some way to mitigagate this difficulty?

zagfles

What kind of DB pension is it? FS or CARE? Or something else eg CARE with a FS link to earlier service?

It's easier with CARE as an approximation eg with 1/49 accrual the PIA would be approximately 16/49 * salary but payrises and inflation will vary it a bit. The scheme might not use the same inflation period as HMRC do.

HamAndCheese

Its CARE with some contributions in a previous FS scheme.