SIPP vs Stocks & Shares ISA

Graeme7777

Hi,

I am a member of an occupational pension fund and would like to invest more for the future. 

I anticipate initially investing in OEICs or investment trusts, and perhaps directly in stocks in future.

This will be money to be invested for at least the next ten years.

This leaves me with at least two options about how best to hold these assets:

1. SIPP: the investor receives tax relief on contributions at his or her marginal rate of income tax. 

2. Stocks & Shares ISA: an investor's contributions are out of net income but the capital growth and dividend income are protected from tax.

Given that I can invest in the same assets in either "wrapper", I guess that the deciding factors are the costs of these options and also the impact of tax on the final values.

Can someone please give me some thoughts about how best to make this choice?

Thanks!

Dazed_and_C0nfused

1. SIPP: the investor receives tax relief on contributions at his or her marginal rate of income tax

It is actually better than that for a few groups of people.

1. Non taxpayers can get "relief at source" despite paying no tax.

2. Scottish residents only liable at the Scottish starter rate get basic rate relief (20%)

3. Some Married Couple's Allowance claimants will get an increased Married Couple's Allowance as well as the pension tax relief.

4. Some Marriage Allowance recipients will be able to keep Marriage Allowance as well as the pension tax relief.

5. Someone liable to (or potentially liable to) the High Income Child Benefit Charge will retain Child Benefit as well as he pension tax relief.

6. Personal Allowance reduction.  Some people who would get a reduced Personal Allowance will get more Personal Allowancecdue to the pension contribution reducing their Adjusted Net Income.

Albermarle

For a basic rate taxpayer when contributing and taking retirement income the tax benefit of a pension is 6.25% compared to investing via an ISA. Their are various scenarios like mentioned above where it can be of more benefit. Particularly if you are a higher rate taxpayer today and will be a basic rate taxpayer in retirement.

squirrelpie

As said, a SIPP is generally better financially. There are two situations where I would consider an ISA:

(a) you want to use some of the money before you reach minimum pension age (e.g [notably] early retirement)

(b) an ISA is somewhat easier to withdraw money from - you just tell the provider how much and they transfer it to your bank. Whereas with a SIPP you have to complete a risk assessment, receive a [useless] illustration, and calculate how much to withdraw to get what you want in your bank after tax. So it can be handy for making one-off witdrawals quickly and simply.

Thrugelmir

squirrelpie said:

As said, a SIPP is generally better financially. There are two situations where I would consider an ISA:

(a) you want to use some of the money before you reach minimum pension age (e.g [notably] early retirement)

SIPP has the advantage for early retirement. In that pension income can be offset annual the personal tax allowance. For a partnership this amounts to over £25k per annum tax free after April 6th. Then there's the tax free lump sum as well. Excess cash drawn down can be used to maximise the available ISA annual allowance. 

squirrelpie

"SIPP has the advantage for early retirement."

Not if you are younger than minimum pension age, which is specifically the case I was talking about!