Add to SIPP or better with ISA? 14 March at 2:01PM in Pensions, annuities & retirement planning 5 replies 237 views

MoosMum

Hi all 
Shortly retiring and number crunching at the moment

Have a DB pension which will start when I finish work, don't know exact figures and it's also complicated by McCloud judgement. However I do know that when I get SP in 6 years will be HR taxpayer.
Have been paying into a SIPP for a number of years (as I was earning less and didn't know my final pension would be as much).
This is last year I can contribute, I've looked at figures and by my reckoning I think there's still a net benefit of paying in , even though I'll be taxed at 40 % when I take the money out. I'll be able to get some money at 20% from SIPP in drawdown over the next 5 years, but obviously not all. 
Am I missing something here , is it worth doing this or is there more benefit just putting the money in an ISA?
Any thoughts appreciated !

Steve_666_

When you put money into a SIPP as a high earner (40% tax payer), you are effectively getting a one off 67% increase. Do you know of some investment that you can make in an ISA that gives such an immediate return.
simple example
You Salary Sacrifice(forget the NI benefits for this) or net pay £1667 into a SIPP and invest in a  fund, you pay £667 less tax .

The alternative you pay the tax man £667 and have £1000 net which you invest in the same fund within the ISA wrapper.

Overtime the fund has grown by 100%, you decide to take the money out.
SIPP taxed at 40% gives you £2000 of £3334
ISA not taxed gives you £2000 of £2000

So the answer is that if you can take you SIPP when you will be taxed at 20% then you will get more, £667 in the example.  You need to figure, where can you make the most from your ISA allowance, where you can reduce your tax the most on any lump of money.

For me with the CGT limit reducing over the next two years, transferring some share options into an ISA looks attractive, the down side is any unprotected cash and investments I have will more likely attract tax for interest, dividends and capital gains.

MX5huggy

Are you a 40% tax payer currently or more importantly will SIPP contributions be receiving 40% tax relief? You probably don’t want to only receive 20% tax relief then pay 40% on the 75% (after the 25% Tax free) on withdrawal. 

Point of correction this year is not the last year you can pay into a SIPP, if you earn no income you will still be able to pay in £3600 gross till you are 75. 

If you delayed taking your DB could you get more? And use the SIPP to bridge to then getting the SIPP money taxed at 0% and 20%? 

MoosMum

MX5huggy said:

Are you a 40% tax payer currently or more importantly will SIPP contributions be receiving 40% tax relief? You probably don’t want to only receive 20% tax relief then pay 40% on the 75% (after the 25% Tax free) on withdrawal. 

Point of correction this year is not the last year you can pay into a SIPP, if you earn no income you will still be able to pay in £3600 gross till you are 75. 

If you delayed taking your DB could you get more? And use the SIPP to bridge to then getting the SIPP money taxed at 0% and 20%? 

Currently 40% taxpayer so have reclaimed additional 20% over past few years. Unfortunately not in my interests to defer pension as now 61 and majority of my pension in CS Classic which I could have had in full at 60. So intending to draw down as much as I can from SIPP between now and 67.

Steve_666_

" So intending to draw down as much as I can from SIPP between now and 67. " You can defer taking state pension and get the 5.9%% annual deferment increase, if that keeps you in the 20% zone for SIPP drawdown. Of course you might end up paying more 40% tax on the extra state pension once you take it...

Albermarle

Keep in mind that you will not actually pay 20% or 40% tax on the SIPP when you withdraw it , as 25% is tax free. So effectively you will pay 15% or 30%.