Stakeholder versus SIPP Versus quasi SIPP

SomeMadeUpName

Hello all. Help wanted (obviously) for pension newbie:

OK after utterly ignoring pension for 35 years I now want to make some decisions but find it all a bit bewildering.

My self and my partner are in our mid 50's, with maybe 7 or 8 years left to work (as our daughter finishes school and probably uni).
We've not ignored planning for income in retirement but have ignored pensions as part of that. The only pension pot we have is in my name, from contracting out back in the 80's and is worth about £60k. 

Neither of us are tax payers, this isn't likely to change for 2 or 3 years, but most likely will for the last 4 or 5 years of work. We do though have cash in savings to spare and I intend to pay into pension to gain tax relief. It will be £2880 (grossed up to £3600) each whilst we are none tax payers, then maybe more once we are paying tax if that works best to max out claiming tax back.

I'm not concerned about whether our pots will be big enough as we have other provision (including, but definately not limited to, £175pw [or whatever applies at the time] in state pension each) at SPA. What I want to do is max out tax back benefit and growth efficiency. I need to crack on sharpish to get contributions in for this year.

For myself I am pretty sure I want to open a SIPP (or more correctly the quasi SIPP from Vanguard), pay in the £2880 (get the £720 off HMRC), then once I am past 55 (6 months time) transfer in the Pheonix Life contracted out pot (transfer out charges drop to 1% past 55). I think I am right in saying that Vanguard charge nothing to transfer in, and nothing to transfer out (so I can change my mind later if I want a true SIPP, as going forward I may want to use my pension to buy a small commercial property off myself [if that's even allowed]).

For my wife I am not sure. The advice from MoneyAdviceService is get a Stakeholder pension for small contributions/small pot (less than say £50k which is certainly the case for my wife even after 8 years) as charges are lower. Reading this forum I've seen the same advice here, but I've also seen advice saying Stakeholder is really an old fashioned product and no good to anyone.

So my questions boil down to:
1 - Any obvious flaws in my plans for myself - Vanguard (for the time being at least) with transfer in of £60k pot?
2 - Why would my wife want a Stakeholder over Vanguard and if she does then how do I go about choosing one?
3 - Less important right now, but I might as well ask, can my pension pot (assuming it's held in a suitable SIPP) buy our business investment property off us (I know it can't buy any of our domestic investment properties)?

Thanks for any feedback. I realise no one can comment on a particular product but just want help with sense checking the plan.

xylophone

with maybe 7 or 8 years left to work 

What are your gross relevant earnings for the current tax year?

And your wife's?

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tax-relief-members-contributions/

Dazed_and_C0nfused

It will be £2880 (grossed up to £3600) each whilst we are none tax payers

Is that because it's all you can sensibly afford?

Or because you each earn £3,600 or less?

Or because you think that's all you are allowed to contribute?

Albermarle

Stakeholder is an older product but still valid . Standard Life and Prudential still offer them to the public .However you are right in thinking they have largely been overtaken by low cost 'SIPPs' like Vanguard . 
Regarding the commercial property , you would need to open 'Full SIPP' . These are more expensive and complicated and from what little I know , it is not always that straightforward when property comes into the equation. 

dunstonh

I think I am right in saying that Vanguard charge nothing to transfer in, and nothing to transfer out 

Hardly any provider does nowadays.

The advice from MoneyAdviceService is get a Stakeholder pension for small contributions/small pot (less than say £50k which is certainly the case for my wife even after 8 years) as charges are lower.

Despite it's name, the Money Advice Service does not give advice.   It gives generic information.   The Generic world tends to be behind the times. In the Generic world, SIPPs are more expensive than stakeholder pensions.  And some are.  A typical stakeholder pension can be obtained for around 0.4%-0.5% all in.   The UK's largest DIY provider has their platform charge 0.45% with investment fund charges on top.   So, its not wrong information.  It just doesnt take into account of the commercial world where things may differ from the generic.  

Personal pensions started getting cheaper than personal pensions from about 2005.  SIPPs started to become the mainstream option for new investments only recently.

but I've also seen advice saying Stakeholder is really an old fashioned product and no good to anyone.

It is old fashioned but it is still suitable for a range of people. Consider it a niche option nowadays.   We tend to only use it for child pensions.

2 - Why would my wife want a Stakeholder over Vanguard and if she does then how do I go about choosing one?

I am not sure why you would want either.  Both give restricted investment selection.  However, if you must limit yourself to those two, then the Vanguard personal pension is probably better.  

3 - Less important right now, but I might as well ask, can my pension pot (assuming it's held in a suitable SIPP) buy our business investment property off us (I know it can't buy any of our domestic investment properties)?

Limited companies are the new way to hold investment properties.   Then pension contributions from the limited company.  Commercial properties within a SIPP is viable but extremely niche.  Its more commonly used by people going into business and using their pension to fund their commercial property.   Whilst it can be used for investments in commercial property, the costs can make it unattractive.  Plus, you have to consider the lifetime allowance.

SomeMadeUpName

xylophone said:

with maybe 7 or 8 years left to work 

What are your gross relevant earnings for the current tax year?

And your wife's?

Thanks for the reply. It varies year to year (dependant on rental returns mainly) but our tax returns have been showing about £8.5k pa for the pair of us for the last few years, sometimes the lions share is my wife's, sometimes mine. We are both consistently below the personal allowance for taxation though, hence the contribution of £2880 each, because then HMRC add £720 each despite neither of us being taxpayers.

SomeMadeUpName

Dazed_and_C0nfused said:

It will be £2880 (grossed up to £3600) each whilst we are none tax payers

Is that because it's all you can sensibly afford?

Or because you each earn £3,600 or less?

Or because you think that's all you are allowed to contribute?

Thanks for the response. It's because (as I understand it) that's the most we can contribute, and get a 20% uplift from HMRC, whilst we are non tax payers.

SomeMadeUpName

Albermarle said:

Stakeholder is an older product but still valid . Standard Life and Prudential still offer them to the public .However you are right in thinking they have largely been overtaken by low cost 'SIPPs' like Vanguard . 
Regarding the commercial property , you would need to open 'Full SIPP' . These are more expensive and complicated and from what little I know , it is not always that straightforward when property comes into the equation. 

Thanks. So maybe the advice to go for Stakeholder, whilst not wrong, is more conservative/old fashioned? 
Yes, I realise I would need a full service SIPP (and it may well not be worth it) but it's something to consider maybe? It would be in a few years anyway as I need to do remodelling on the property first.

TVAS

It sounds like you will not have enough money in the pension to buy the business property. As mentioned before there is a lot of paperwork and charges having a property owned by a SIPP, you will have to pay rent to the SIPP at a commercial rate so the business needs to generate turnover.  Most SIPP providers limit how much of the pension fund can be used so the rest will be borrowing. Will you be ab le to get a commercial loan for a commercial property at this juncture? From what you are saying you may be winding down and a SIPP property purchase is winding up. It sounds like you have left this aspect far too late.

SomeMadeUpName

dunstonh said:

I think I am right in saying that Vanguard charge nothing to transfer in, and nothing to transfer out 

Hardly any provider does nowadays.

The advice from MoneyAdviceService is get a Stakeholder pension for small contributions/small pot (less than say £50k which is certainly the case for my wife even after 8 years) as charges are lower.

Despite it's name, the Money Advice Service does not give advice.   It gives generic information.   The Generic world tends to be behind the times. In the Generic world, SIPPs are more expensive than stakeholder pensions.  And some are.  A typical stakeholder pension can be obtained for around 0.4%-0.5% all in.   The UK's largest DIY provider has their platform charge 0.45% with investment fund charges on top.   So, its not wrong information.  It just doesnt take into account commercial matters.

Personal pensions started getting cheaper than personal pensions from about 2005.  SIPPs started to become the mainstream option for new investments only recently.

but I've also seen advice saying Stakeholder is really an old fashioned product and no good to anyone.

It is old fashioned but it is still suitable for a range of people. Consider it a niche option nowadays.   We tend to only use it for child pensions.

2 - Why would my wife want a Stakeholder over Vanguard and if she does then how do I go about choosing one?

I am not sure why you would want either.  Both give restricted investment selection.  However, if you must limit yourself to those two, then the Vanguard personal pension is probably better.  

3 - Less important right now, but I might as well ask, can my pension pot (assuming it's held in a suitable SIPP) buy our business investment property off us (I know it can't buy any of our domestic investment properties)?

Limited companies are the new way to hold investment properties.   Then pension contributions from the limited company.  Commercial properties within a SIPP is viable but extremely niche.  Its more commonly used by people going into business and using their pension to fund their commercial property.   Whilst it can be used for investments in commercial property, the costs can make it unattractive.  Plus, you have to consider the lifetime allowance.

Thanks for the comprehensive reply.
Addressing things in order:
- Good to know things have moved on and transfer charges are becoming a thing of the past, are there any 'unseen' costs to transferring I should know about?
- I hear you on the MAS. In the webchat they just said that for small contrib/pot I 'might want to look for' a stakeholder as the charges are less.
- Those 0.4-0.5% Stakeholder charges, you say a big SIPP provider charges 0.45% but with fund charges on top, what are fund charges?
- I'm looking at Stakeholder and Vanguard as I want restricted choice at the moment. I'm a babe at this and nervous, so feel like the range of choice a full SIPP might give me would allow me to mess things up, either by making wrong decisions or just not paying enough attention. Plus I assumed the limited choice in Vanguard meant it's charges would be lower?
- if I were to buy any new investment properties then I would go Ltd Co. I run a few for trade, so the structures don't scare me. The properties I have are locked into long established partnerships and have good mortgage products attached so it's not worth moving them out. Being a non tax payer the lower rate of interest tax allowance is fine for now, and if that changed (for the better as it implies higher yield) then I could use pension contribs to mitigate.
- The idea with buying my own commercial property into a SIPP would be to release cash which I then spend on further overseas property for retirement, or cycle into pension contrib (which shouldn't breach recycling rules as the money comes from a property sale [albeit to a pension] not from draw down). It may very well not be worth the agro and is something to think about in a few years time, not now really.
- Finally the LTA: I WISH that was an issue!!

SomeMadeUpName

TVAS said:

It sounds like you will not have enough money in the pension to buy the business property. As mentioned before there is a lot of paperwork and charges having a property owned by a SIPP, you will have to pay rent to the SIPP at a commercial rate so the business needs to generate turnover.  Most SIPP providers limit how much of the pension fund can be used so the rest will be borrowing. Will you be ab le to get a commercial loan for a commercial property at this juncture? From what you are saying you may be winding down and a SIPP property purchase is winding up. It sounds like you have left this aspect far too late.

Thanks for the input. So this business property is being carved off the deeds of a mixed use property I've owned for a long time (25yrs). The residential side of it I'll have PPR on and will be worth just south of £1m. The commercial element once carved off will only be worth maybe £100k. At some point a few years from now I'll be crystalizing some reasonable capital gains on other assets, there would be a chunk of CGT to pay even after utilising some historic CG losses I'm carrying. I would use a pension contrib at that point to get me out of the higher rate bracket. After that there would be more than enough in a SIPP to buy the business property off me (remember as mentioned at the start) I'm putting £3600 in every year from now and transferring in £60k from an existing pot. That said I didn't know about only being able to use a portion of SIPP pot for commercial prop so that might kill it. Or it just all might be too much hassle.
As an aside:
Could a pension take a private mortgage from an individual? So, could I in theory sell my own property into my pension fund and if it was short by say 20% of the price, lend that money to my pension charging a commercial interest rate?? Just thinking out loud here.