Move from S&S ISA to SIPP the best option

Corbula

I've currently got a S&S ISA with approx £20k inside it. I think I'm going to move this into a SIPP invested in the same fund.

I've had this money in preparation for later in life (I'm 32 this month) but always had this idea that it's accessible if I needed it. I've been thinking recently it was always a last resort so will likely never be touched so I'm best putting it into a SIPP for the tax benefits? It's still better off even with the income tax payable? 

Im a basic tax rate payer and don't forsee me moving up a band. I've also got my work place pension so the SIPP will work alongside that and my state pension. As for accessible funds I have £15k in an ISA if i get stuck or need it for home improvements or anything.

A question about a SIPP, the 25% tax free you can take, is that only at 55 or just the first withdrawal? So could I leave it another 5 years after then take a 25% tax free?

Thanks all.

MX5huggy

If you open a SIPP today the age of access will be 57. You can take as little or as much of the 25% as you like at any point after 57. 

Are you earning enough to pay £20k into a pension in one tax year? Plus your pension contributions from your employment. 

Are you maximising your work place pension options? Is the work place pension Salary Sacrifice?

Corbula

MX5huggy said:

If you open a SIPP today the age of access will be 57. You can take as little or as much of the 25% as you like at any point after 57. 

Are you earning enough to pay £20k into a pension in one tax year? Plus your pension contributions from your employment. 

Are you maximising your work place pension options? Is the work place pension Salary Sacrifice?

I thought you could pay £40k a year into a SIPP, I didn't think there was a limit based on salary,i thought you could pay in what you wanted to? I'm on £29k.

My work place pension is set at the 3%/5% employer/me. No its not salary sacrifice. 

Daliah

The limit is about the amount on which you receive tax relief. You can pay as much as you like into a pension but most people will only get tax relief on max £40,000 or their annual income, whichever is the lower. There is a "carried forward" option which allows you to use unused contributions from the last three years - this may apply in your case.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/the-annual-allowance

As a general question: what are you hoping to achieve by converting your ISA into a SIPP?

Dazed_and_C0nfused

Daliah said:

The limit is about the amount on which you receive tax relief. You can pay as much as you like into a pension but most people will only get tax relief on max £40,000 or their annual income, whichever is the lower. There is a "carried forward" option which allows you to use unused contributions from the last three years - this may apply in your case.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/the-annual-allowance

As a general question: what are you hoping to achieve by converting your ISA into a SIPP?

The op will be limited by their earnings.

Cannot see carry forward being relevant here.

If they put their £20k into the SIPP it will get £5k in basic rate tax relief added so they have £25k.

When that is then taken as a pension is tax free and 75% is taxable.  

End result is a 6.25% benefit just from the combination of tax relief on the way in and TFLS on the way out.

dunstonh

SIPP will be better than ISA as long as you can leave it.
Have you considered a LISA?

masonic

To me this seems like a rather extreme move. Over your lifetime you'll probably get the opportunity to build up your pension from income, perhaps in the future using salary sacrifice (even if not now). Build it up too far, and you could face tax consequences due to the lifetime allowance. LISA is worth considering unless income in retirement is going to be very low. Otherwise keeping options open while young and stuffing pension as you age gives maximum flexibility and avoids future penalties.

Corbula

Dazed_and_C0nfused said:

Daliah said:

The limit is about the amount on which you receive tax relief. You can pay as much as you like into a pension but most people will only get tax relief on max £40,000 or their annual income, whichever is the lower. There is a "carried forward" option which allows you to use unused contributions from the last three years - this may apply in your case.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/the-annual-allowance

As a general question: what are you hoping to achieve by converting your ISA into a SIPP?

The op will be limited by their earnings.

Cannot see carry forward being relevant here.

If they put their £20k into the SIPP it will get £5k in basic rate tax relief added so they have £25k.

When that is then taken as a pension is tax free and 75% is taxable.  

End result is a 6.25% benefit just from the combination of tax relief on the way in and TFLS on the way out.

If my salary is £29k the the pension amount at the end will be £25k so lower than my earnings what's the limit here? That should be OK? 

Corbula

Daliah said:

The limit is about the amount on which you receive tax relief. You can pay as much as you like into a pension but most people will only get tax relief on max £40,000 or their annual income, whichever is the lower. There is a "carried forward" option which allows you to use unused contributions from the last three years - this may apply in your case.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/the-annual-allowance

As a general question: what are you hoping to achieve by converting your ISA into a SIPP?

The end result is better pension pot come retirement but also a SIPP for a very particular reason. My child has disabilities which they will want to stop benefit entilited to her because they see my savings in an ISA fair game. Don't know what they expect to happen when that runs dry if they did. Putting it in a SIPP means better retirement pension and my child gets everything sees entilited to, to help her. 

Corbula

masonic said:

To me this seems like a rather extreme move. Over your lifetime you'll probably get the opportunity to build up your pension from income, perhaps in the future using salary sacrifice (even if not now). Build it up too far, and you could face tax consequences due to the lifetime allowance. LISA is worth considering unless income in retirement is going to be very low. Otherwise keeping options open while young and stuffing pension as you age gives maximum flexibility and avoids future penalties.

I'm never going to reach over £1m in my lifetime! 

masonic

Corbula said:

masonic said:

To me this seems like a rather extreme move. Over your lifetime you'll probably get the opportunity to build up your pension from income, perhaps in the future using salary sacrifice (even if not now). Build it up too far, and you could face tax consequences due to the lifetime allowance. LISA is worth considering unless income in retirement is going to be very low. Otherwise keeping options open while young and stuffing pension as you age gives maximum flexibility and avoids future penalties.

I'm never going to reach over £1m in my lifetime! 

When you are 70, £1m will be 0.3m in today's money if average inflation is 3%. State retirement age could be in the mid-70s to early 80s.