SIPPs allowance alongside NHS pension? 4 February at 8:01PM in Pensions, annuities & retirement planning 8 replies 439 views

confused_about_pensions

Hi, I have been reviewing my savings options in preparation for my retirement and considering my pension and would appreciate some advice please!

I am in my early 40s and I have utilised my full ISA allowance this year, including a LISA. I work for the NHS, am in the higher rate tax bracket and am in the 2015 pension which I contribute to each month but do not make any additional voluntary contributions. 

In addition I have built up almost £20k savings, which is not doing very much and which I would like to maximise. I am fortunate in that I do not need easy access to these savings and so was looking at different investment options. 

As I have used the full ISA allowance this year and am keen not to earn over my personal savings allowance, I started looking at SIPPs. From what I have read, these are a tax efficient way of investing into a private pension - and in researching it looks like a can pay up to £40k into a SIPP with a government contribution of 20% and I can claim 20% tax back.

What I have not been able to find is whether this is in addition to my NHS pension contributions? Or if the £40k limit includes my NHS pension contributions? I also can't see whether, if the latter, whether the £40k limit would include my employee contributions only or if it would also include the employer contributions into my NHS pension?

Alternatively I could consider AVCs - however this would involve opening a new pension as you can't make AVCs into the 2015 NHS pension scheme - or I could buy additional years in the NHS scheme - however I am finding it really difficult to understand the allowances and benefits of these compared with a SIPP, especially as none of it is salary sacrifice. 

I find the pension rules and information really confusing and would appreciate any advice on the above and whether the SIPP is a good option for me?

Thanks very much in advance

hara____

It can be confusing when you have both DB and DC schemes (sorry, don't know much about the NHS scheme but I assume it's all DB).

If you have NHS and a SIPP, it's the sum of both that has to stay below 40k. But it's not as simple as looking at contributions to the NHS part, you need to understand the 'pension input amount' for it. That, plus your gross SIPP contributions need to be below 40k.

Though if you're just starting a SIPP you may well be able to carry over some unused 40k allowance from prior years?

Flugelhorn

it depends on level of income in the NHS - if you earn a significant amount you can get clobbered for the AA particularly in high CPI years without actually putting much money in at all 

Pat38493

Keep in mind also there is also another limit - you cannot contribute more into pensions in any one tax year than the total amount that you earned in that year, so if you earned less than 40K you cannot put the whole 40K in either.

Dazed_and_C0nfused

For annual allowance purposes you will need to factor in your pension input amount from the NHS 2015 scheme, the amount you (and the NHS) pay in contributions is irrelevant for this.

When you contribute to a SIPP the pension company adds 25% to your contribution, equivalent to 20% of the gross amount i.e. you pay £3,200 and they add £800 making a gross contribution of £4,000. £4,000 x 20% = £800.

Higher rate tax relief isn't necessarily an extra 20%. Say you only paid higher rate tax on £1,000 then you can only save the higher rate tax on £1,000. If you had contributed £4,000 (gross) you wouldn't get £800 back.

The actual way higher rate relief works is that the gross contribution increases your basic rate band meaning more income is taxed at 20% and less at 40%.

Relief at source contributions to a SIPP also reduce your adjusted net income so are helpful in mitigating the High Income Child Benefit Charge and avoiding tapered Personal Allowance.

SIPP's are very good from a flexibility perspective. You don't have to buy an annuity so they could be used to bridge the gap from early retirement to the time your DB (NHS 2015) and State Pension start.

But you need to weigh that up against the guaranteed income additional years in the NHS scheme would give you.

What is best for one person isn't going to be best for someone else

NlghtOwl

You’re absolutely smashing it if you’re taking full advantage of your work pension and investing in your Lisa and ISA as well. There’s no harm in putting a bit in a SIPP, keeping in mind the limits mentioned above. I like the idea of having these separate pots which will give you flexibility in terms of when you retire and taking advantage of taxable and tax free investments. 

If you’ve still got spare after all that then I would say enjoy it and treat yourself as sometimes life does throw a curveball so enjoy the journey. Good luck

Universidad

Could you buy added pension from the NHS? If you get in this year with a lump sum it will be revalued in April by CPI, so adding 10% to whatever you've put in on the spot. Pretty good investment, in my opinion.

There'll probably be a deadline soon for buying added pension by lump sum in this tax year.

OldBeanz

Additional Pension Contributions - give you a larger pension but amended down if you retire before your normal pension age.
Note if you buy APC as a one off tax relief is limited to any tax you have paid.
Additional Voluntary Contributions - are like a SIPP but with limited investment options. Can be taken 10 years before normal pension age. Tax relief limited to the tax you pay.
Both of these are taken from your salary so tax is adjusted automatically.
SIPP has thousands of investment options. Can be taken 10 years before normal pension age. Any Higher tax has to be reclaimed through the tax office but pension company adding 25%.
Depends what you are trying to achieve early retirement, extra pension or something in-between.

confused_about_pensions

Thank you all so much - you have all really helped me to sort through fact and fiction in a way that makes sense! The intention is to retire early, so sounds like a SIPP might be a good option and now much clearer on allowances and benefits. Very grateful for you taking the time to help!