Why use a SIPP and workplace pension together?

redpete

Thrugelmir said:

redpete said:

Albermarle said:

For more experienced investors the better choice of investments in a SIPP is a plus . However for the majority the choice of funds in a workplace pension is enough, and probably less scope for blunders. In any case >90% never move out of the default fund ( or are even aware of what they are invested in )

That's true. I was surprised when chatting with one of the employee trustees of our company scheme how many of the employees take just the default investments, and that for a company with a high proportion of numerate scientists / engineers.

Default funds are such for a reason. No evidence that a high risk equity strategy works for everyone. Being numerate doesn't make somebody a better investor either. Common sense is a basic skill that requires no IQ. 

It's not as simple as 'default funds = low risk' vs 'self-select = high risk'.  I'm surprised at the lack of understanding of why a particular default fund profile, e.g. Target Draw-down, might or might not be suitable.  The "one size fits all' approach doesn't fit all; someone might have a significant final salary pension due as well as the DC pension, they might have other savings or investments, they might have a valuable property that they will be down-sizing from, they might have health conditions that affect the expected draw-down period, ...

Albermarle

isayhello said:

underwhelmed_saver said:

For me I've moved all of my previous defined-contribution pensions into a SIPP.

I also contribute monthly to the SIPP alongside my workplace pension, which I contribute enough for the max employer contribution  (me 2%, employer 5%)

I would contribute more to the workplace one, but they don't offer salary sacrifice so the contributions get taken out after tax. I find it easier to just top up my SIPP instead with a regular monthly amount.

So with your SIPP when you're adding money to it, as I understand it the SIPP provider should be topping this up with 20% tax relief correct? so for every £8 you add, it's actually adding £10? Have I got that right?

What is the deal if you're a higher rate earner, is it a hassle to try and claim the extra relief?

Yes , if you add £8 to a SIPP, the provider will claim £2 tax relief from HMRC and add it to your pensions ( often some weeks later ) .
If you are a 40% taxpayer , you need to inform HMRC about your gross pension contributions during the tax year  ( £10 in this case ) and you should get a further tax relief of £2 paid directly to you, usually in the form a tax rebate.
Some other points
1) You can not claim more higher rate tax relief than you actually paid 40% tax .
2) You can inform HMRC directly - it is OK to make an estimate for the current tax year , or if you fill in self assessment forms you can wait until then .
3) For the following tax year, HMRC will assume you will make the same contributions and adjust your tax code accordingly . So then you will not receive a one off rebate, but you will get more take home pay each month.  

Higher rate tax relief is pretty generous , so you should make as much benefit from it as possible .

isayhello

granta said:

Do you know what the charges are for your older pensions?
I know charges are not the only factor but it was the starting point for me in evaluating whether to stick with the older pensions where the fees now seemed excessive compared to more recent pensions and the SIPP I opened. 

@granta I would have to check but it was less than 0.5% I'm sure.

isayhello

Albermarle said:

Yes , if you add £8 to a SIPP, the provider will claim £2 tax relief from HMRC and add it to your pensions ( often some weeks later ) .
If you are a 40% taxpayer , you need to inform HMRC about your gross pension contributions during the tax year  ( £10 in this case ) and you should get a further tax relief of £2 paid directly to you, usually in the form a tax rebate.
Some other points
1) You can not claim more higher rate tax relief than you actually paid 40% tax .
2) You can inform HMRC directly - it is OK to make an estimate for the current tax year , or if you fill in self assessment forms you can wait until then .
3) For the following tax year, HMRC will assume you will make the same contributions and adjust your tax code accordingly . So then you will not receive a one off rebate, but you will get more take home pay each month.  

Higher rate tax relief is pretty generous , so you should make as much benefit from it as possible .

@Albermarle So a lot of this is new to me, I've never filled in a self assessment before and I guess you only do that if you're self employed?
so in this case I would have to call up HMRC and give them my gross pension contributions at the end of the year so they can work out the extra 20% relief?
By tax rebate do you mean they adjust the tax code, so it just affects future take home pay rather than what you've previously paid?

redpete

isayhello said:

Albermarle said:

Yes , if you add £8 to a SIPP, the provider will claim £2 tax relief from HMRC and add it to your pensions ( often some weeks later ) .
If you are a 40% taxpayer , you need to inform HMRC about your gross pension contributions during the tax year  ( £10 in this case ) and you should get a further tax relief of £2 paid directly to you, usually in the form a tax rebate.
Some other points
1) You can not claim more higher rate tax relief than you actually paid 40% tax .
2) You can inform HMRC directly - it is OK to make an estimate for the current tax year , or if you fill in self assessment forms you can wait until then .
3) For the following tax year, HMRC will assume you will make the same contributions and adjust your tax code accordingly . So then you will not receive a one off rebate, but you will get more take home pay each month.  

Higher rate tax relief is pretty generous , so you should make as much benefit from it as possible .

@Albermarle So a lot of this is new to me, I've never filled in a self assessment before and I guess you only do that if you're self employed?
so in this case I would have to call up HMRC and give them my gross pension contributions at the end of the year so they can work out the extra 20% relief?
By tax rebate do you mean they adjust the tax code, so it just affects future take home pay rather than what you've previously paid?

SA can be required if you are employed and a higher rate tax payer, or if you have other income that makes your tax situation more complicated than normal.

Tax rebates are paid to you, usually by transfer into your nominated bank account.  Point 3 in Albermarle's post covers the adjustment of tax code where HMRC will anticipate your situation will be similar in future years based on your last submitted SA.

Albermarle

So a lot of this is new to me, I've never filled in a self assessment before and I guess you only do that if you're self employed?
so in this case I would have to call up HMRC and give them my gross pension contributions at the end of the year so they can work out the extra 20% relief?

If you do not fill in a self assessment form now, there is no need to fill one in just to claim higher rate tax relief.

Just inform HMRC of your gross pension contributions .

isayhello

Albermarle said:

If you do not fill in a self assessment form now, there is no need to fill one in just to claim higher rate tax relief.

Just inform HMRC of your gross pension contributions .

Ah thanks, yes I currently just am doing paye, so have not used the SA approach.
I guess it makes sense to wait until the end of a tax year to give the gross amount rather than after just a few months?

Albermarle

isayhello said:

Albermarle said:

If you do not fill in a self assessment form now, there is no need to fill one in just to claim higher rate tax relief.

Just inform HMRC of your gross pension contributions .

Ah thanks, yes I currently just am doing paye, so have not used the SA approach.
I guess it makes sense to wait until the end of a tax year to give the gross amount rather than after just a few months?

Yes probably simpler just to wait until April, especially as it is already January 

isayhello

Ah ok thanks, thought so. I also need to confirm if my work pension is net pay or not as I've seen mixed messages for this so might be missing out on tax relief here as well. Weirdly the pension provider say it's not net pay in one of their info leaflets but work have said it is. I think I need to call and clarify this as it's not clear from the payslips.

csgohan4

bare in mind if your work pension is DB and you add in a SIPP, if your a 40% tax earner, it could messy calculating the AA, especially if your a high earner.