NHS APC or SIPP --- dilemma

Random47

I suppose their is no right tor wrong answer, its about the right answer for each individuals circumstances and needs / expectations.

APC or SIPP -- views are sought form the forum experience / opinions on this.

My OH prefers increasing SIPP (VGLS) from April next year from current £400 month to £1000. I acknowledge but also want APC as it will be guaranteed whilst SIPP is vehicle to fund early retirement gap till SP paid (with small SIPP residual pa till around 77).
I feel either double SIPP from £400 to £800 with other £227 (gross) to APC (buys £2500 annual pension at NPA), or do the SIPP at £1000 and just find another say £113 (gross) for APC over next 13 years which will give £1250 NPA annual pension DB.

What are thoughts on this?

MX5huggy

I think the APC is expensive (because it’s a valuable benefit). It will cost £35412. 

Is the APC with dependents benefits? 

To some degree it depends on how much DB pension you will have if it’s £6k then adding a guaranteed £2.5l seems more worthwhile than if it’s £25k because that extra £2.5k is not going to change the dial on your life style. 

Whereas £35k which could be £60k or £20k by retirement could be change the dial on what you can do. 

The premise that the SIPP is just to bridge is possibly a bit simplistic. Additionally you could delay (not checked the rules) getting the NHS pension and SP and live off the SIPP longer meaning they can be increased. 

Thrugelmir

The shorter the timescale the greater the exposure to market shocks you'll be. Which fund are you investing in? 

Random47

MX5huggy
Is APC expensive though? The £2.5K bought is gross £35412 but actual cost is less tax, so circa £28K ?
No dependants cover. OH 10 years younger and kids all 23+ by then so dependant cover costs outweigh low risk factor it would be needed and paid out in event of OH early death.
OH DB is projected at £15K pa at 57, SIPP projected at £17K pa, then at 67.5 when full SP kicks in (projected at circa £16.8K in 2045 using 2,5% pa increase on current SP) 
So from 57 combined will be circa £32K pa going forward (with DB getting CPI annual increase, ergo APC compounded increases win)
Exactly my thoughts on SIPP values of could be 60K or might loose and be 20K.
For info all my SIPP projections are based on 3.5% net increase over the plan.

Thrugelmir
Agree time in & not timing it. All funds for my and OH SIPP are VGLS. I am more risk appetite and currently mix of LS100, 80 and 60 with a 2035 retirement one. Though I need to curtail my SIPP pay in over 2022-2024 to keep within AA. OH SIPP risk appetite lower and mix of LS60 & 40, additional policy of retirement version perhaps 2040 etc., will be chosen when SIPP increased in April 2022.

We intend to keep SIPP invested when drawdown starts to hopefully maximise post SP receipt SIPP balance that can be drawdown to be exhausted by around age 75. 

I don't see the deferring of DB (or indeed SP) as worthy in my or OH case.
(Ignoring tax implications which will in 19-21% zone) The lost income for that year takes years to recoup on the slight increase that is added. However, I have not done a lot of modelling on this so it is always an option I can return too.

MX5huggy

If you put the money in a SIPP it’s cost to you is £28k (you can look at it before or after tax as long as you do the same with both) that’s presuming your not a higher rate tax payer. 

Then you’re going to pay 20% (currently) tax on all the APC money each year where as with the SIPP you get 25% tax free. 

Random47

MX5huggy said:

If you put the money in a SIPP it’s cost to you is £28k (you can look at it before or after tax as long as you do the same with both) that’s presuming your not a higher rate tax payer. 

Then you’re going to pay 20% (currently) tax on all the APC money each year where as with the SIPP you get 25% tax free. 

I get the 25% tax free benefit, which is fine, but this reduces reinvestment gains obviously and reduces number of years SIPP will last. Forecast comparison below.
Assumptions are APC grows at indexed CPI of 1.7% pa, with SIPP at 2.5% net pa growth.
25 year timeframe from 57-82.
Post aged 82 when SIPP exhausted the gains from APC obviously gain year on year. Though true gain really from aged 84 if you equate the SIPP tax free taken at 57 of £10K - the £2K tax free bit equating to APC paid at 83.

	APC	Actual Cost		SIPP
Age	179mth	Tot Pd in		179mth
44	£2,148	£27,924		£2,578	SIPP Value
45	£2,148			£2,642
46	£2,148			£2,708
47	£2,148			£2,776
48	£2,148			£2,845
49	£2,148			£2,916
50	£2,148			£2,989
51	£2,148			£3,064
52	£2,148			£3,141
53	£2,148			£3,219
54	£2,148			£3,300
55	£2,148			£3,382
56	£2,148			£3,467	Total SIPP £39,026
	Gross	net paid from 57		Gross		25% Tax Free
57	£1,500	£1,200		£1,500	Residual SIPP £29,270	£9,757
58	£1,526	£1,220		£1,526	Drawdowns £28,501
59	£1,551	£1,241		£1,551	£27,688
60	£1,578	£1,262		£1,578	£26,829
61	£1,605	£1,284		£1,605	£25,922
62	£1,632	£1,306		£1,632	£24,965
63	£1,660	£1,328		£1,660	£23,958
64	£1,688	£1,350		£1,688	£22,897
65	£1,717	£1,373		£1,717	£21,781
66	£1,746	£1,397		£1,746	£20,609
67	£1,775	£1,420		£1,775	£19,379
68	£1,806	£1,444		£1,806	£18,088
69	£1,836	£1,469		£1,836	£16,735
70	£1,868	£1,494		£1,868	£15,317
71	£1,899	£1,519		£1,899	£13,832
72	£1,932	£1,545		£1,932	£12,279
73	£1,964	£1,572		£1,964	£10,654
74	£1,998	£1,598		£1,998	£8,956
75	£2,032	£1,625		£2,032	£7,182
76	£2,066	£1,653		£2,066	£5,330
77	£2,101	£1,681		£2,101	£3,354
78	£2,137	£1,710		£2,137	£1,310
79	£2,173	£1,739		£2,173	-£805
80	£2,210	£1,768		£0
81	£2,248	£1,798		£0
82	£2,286	£1,829		£0
		£38,827 APC          £38,934 SIPP
		First 25 yrs Marginal Difference

I think forecast really shows negligible difference and its really about whether features such as flexibility or guaranteed benefits are the driving goals. Unless one is fairly confident they will live into their 90s.

For clarity example shows only the additional APC benefit / SIPP isolated out. Net paid the same from either SPC or SIPP (i.e. SIPP drawdown to match APC paid)