LifeStrategy for "Wealth Preservation" and SIPP?

Aminatidi

The 55 or 57 swap presumably (this sounds thick) is as simple as I'm in my 40's now so if I open a new SIPP today I won't be able to access it until 57 - cut and dry barring ill health?

Factor in carry-forward which I think I can and my god it looks tempting but that lockaway is a big negative to get over before committing any significant amount of existing money

MX5huggy

I think you need to get on with it unless you have some real plans for £250k You are saving for retirement. I presume you are a higher rate tax payer at least pay into a pension enough to get you down to standard rate. Even more so if you have kids? 

Alexland

Aminatidi said:

The 55 or 57 swap presumably (this sounds thick) is as simple as I'm in my 40's now so if I open a new SIPP today I won't be able to access it until 57 - cut and dry barring ill health?

Depends who you open the SIPP with. Vanguard's scheme FAQ seems to reference the government minimum access age so would probably rise to 57 in 2028. Fidelity scheme rules have an unqualified right of access at 55 which would be protected under the draft legislation being proposed if the account was opened before April 2023. I hold the Vanguard VEVE ETF in my Fidelity SIPP as the £45 cap works out much cheaper on a large amount than the Vanguard Investor 0.15% platform fee capped at £375 and retaining access from age 55 is important to me.

Aminatidi

Alexland said:

Aminatidi said:

The 55 or 57 swap presumably (this sounds thick) is as simple as I'm in my 40's now so if I open a new SIPP today I won't be able to access it until 57 - cut and dry barring ill health?

Depends who you open the SIPP with. Vanguard's scheme FAQ seems to reference the government minimum access age so would probably rise to 57 in 2028. Fidelity scheme rules have an unqualified right of access at 55 which would be protected under the draft legislation being proposed if the account was opened before April 2023. I hold the Vanguard VEVE ETF in my Fidelity SIPP as the £45 cap works out much cheaper on a large amount than the Vanguard Investor 0.15% platform fee capped at £375 and retaining access from age 55 is important to me.

Seems slightly nuts that this isn't laid out much more clearly on SIPP providers websites?

Surely the most basic question when considering a SIPP is "when can I get at my money?" isn't it?

Alexland

Minimum pension access age is very much an evolving situation with the legislation to increase to 57 still in draft form so it's not yet possible for schemes to provide definitive guidance see below thread,
https://forums.moneysavingexpert.com/discussion/6240982/increase-to-minimum-pension-age-from-55-to-57-update-25-8-fidelity-provisionally-confirm-status/p1

Aminatidi

So revisiting this as I haven't done anything yet other than to max out my ISA contributions with new cash.

Today I received the info I'd requested from Royal London which was to confirm if there were any benefits to keeping my pension with them and it doesn't appear that there are.

Looking at SIPP providers Vanguard do appear to be a very low cost option plus there's a "two birds one stone" element in having a SIPP and General Account with them for hoovering up new non-ISA money in a low cost way.

Other than the obvious limitation of choice of funds are there any significant downsides to the Vanguard SIPP?

billy2shots

The biggest downside is access at 57 appears nailed on.

Fidelity may offer the alternative 55.

Your name is familiar (Citywire?) If I'm correct I seem to remember you like a variety of wealth preservation funds (states the obvious given earlier posts). With that in mind I don't think you will be happy with the limited options. 

Are you minimising costs (taxes) with your GIA? Selling annually to use your CGT allowance and then buying an alternative investment or waiting 30 days to buy back in to the original investment. This keeps your 'buy in' cost higher (if markets have risen that year) so limits CGT going forward. 

With that train of thought have you considered GIA 'Bed and ISA' to fund the ISA leaving new cash to head into the future SIPP (Salary sacrificing preferably). 

Aminatidi

Yes Citywire.

The 55 v 57 point is an interesting one as the Vanguard site seems less than clear on that.

You're quite right that I have half my "cash" (not pension and unwrapped) in CGT/Ruffer.

As it stands I seem to be using up the ISA allowance each year through monthly contributions from salary.

billy2shots

Aminatidi said:

Yes Citywire.

The 55 v 57 point is an interesting one as the Vanguard site seems less than clear on that.

You're quite right that I have half my "cash" (not pension and unwrapped) in CGT/Ruffer.

As it stands I seem to be using up the ISA allowance each year through monthly contributions from salary.

I am far from knowledgeable on the subject but do some research on your GIA taxes. 

There will be annual dividend tax to pay on the Capital Gearing and Ruffer investments and apart from £2000 tax allowance you can't really avoid that. 

However your investments, if left untouched will be racking up quite a large capital gains tax. Once you sell some or all of your investments then you will realise the gain and have to pay the bill according to your personal tax band. It's important to note that 'selling' doesn't just mean selling a holding and withdrawing the money. The sale proceeds are still taxable even if the cash remains in the GIA or if the money is used to buy other investments. 

This is where you want to seriously consider selling investments yearly and then reinvesting in similar holdings or wait 30 days and buy the same holding (make sure you are clear on that HMRC loophole).
This will limit your capital gains tax and best use your annual capital gains allowance (£12,300)


Very rough example (please forget compound performance for this simple illustration) 

£100,000 of Ruffer bought in 2010 is now worth £130,000 6 years later.

If sold there is a £30,000 capital gain to be paid. £12,300 is your allowance which leaves £17,700 to be taxed at your personal rate.


Now let's look at the same holding bought and sold each year for the same 6 years.

£100,000 initial investment

Year one now worth £105,000. Sell which realises a £5,000 gain. You have £12,300 Capital gain allowance so no tax. 

Buy back in at the new share price totalling £105,000.

Year 2, holding is now worth £110,00 but as you bought back in at £105,000 there is still only a £5,000 CGT. Your £12,300 allowance covers this again. 

Repeat yearly.

After 6 years your investment is still worth £130,000 but unlike the first 'buy and hold' example, your annual 'trading' has meant you pay £0 in capital gains tax if you where to sell part of all of your holding. 


On to the ISA point. 

Personally I would use my annual capital gain allowance to annually sell my holdings on my GIA but instead of reinvesting all of the proceeds in similar investments (or waiting 30 days for the same one) I would withdraw £x and put this in my ISA. This is referred to as 'bed and ISA'.

This is a way of minimising or completely avoiding tax (depending on sums involved) when withdrawing money from an unwrapped account and getting it into a tax haven that is the ISA.

This would then have a knock on effect on your ISA. You may have filled it from your GIA proceeds or certainly part filled. This means you have less to invest from your after taxed wages. 

This is where more tax efficient planning compounds your results. This money you no longer need to fill your ISA can be used in the new SIPP you were talking about. 

Salary sacrificing is the best way to contribute to that SIPP if it's an option. If not then even paying out of your taxed salary will see HMRC bump up your payment by 20%.

 Who doesn't like free money?

It gets better, if you are a higher or additional rate tax payer then you can claim back another 20% or 25% of your contribution respectively. 

Salary sacrificing still allows those higher rate tax payers to claim back the additional tax savings and is still the best route. 








* This is just my understanding of the system. Please do your own research before making a decision. 

Aminatidi

Billy thanks, sounds like CGT (tax not trust) is something I need to look into a little more in that case.

Ironically it sounds as if "buy and hold" in a GIA isn't so bad if you don't plan on selling the lot in one lump but that's precisely what might happen if I "just" decide to switch fund.

Definitely one to look at