ISA or SIPP as getting closer to retirement

mostlyclueless

Other similar posts prompted me to make this question specific with some numbers.  As I get closer to retirement, and have more confidence that there will be no emergencies requiring me to call on my cash or ISA funds, should I be thinking about moving some of my savings into my SIPP for the tax benefits?

I’m 52 and would like to be able to retire at 60. I’m a higher rate tax payer and have about £30k a year to split between to my ISA and SIPP.  I have unused pension allowances from previous years.  I contract under paye so don’t have a company pension.

Current finances
No mortgage or debts

I have an emergency cash fund of £50k which ideally I’d like to keep into retirement. 

£4k pa DB pension due at 60
£450k SIPP pot.
£60k in an index fund ISA

As a higher rate tax payer nearing retirement am I better off stuffing everything into my pension to use up my allowances?

Albermarle

 I’m a higher rate tax payer and have about £30k a year to split between to my ISA and SIPP.  I have unused pension allowances from previous years.  

Normally it is always going to be pension over ISA, for a higher rate taxpayer in their 50's.

However regardless of unused allowances, the maximum you can add gross to a pension is your gross earnings in a tax year.

Plus of course you can not get more 40% tax relief than 40% tax you actually pay.

Steve_666_

Short answer, starting with a question. SIPP or ISA, as a 40% tax payer the answer is SIPP if you are going to be a 20% tax payer when you intend to drawdown your SIPP.

Linton

You are better off contributing to a pension especially if you are paying higher rate tax now and expect to be on basic rate in retirement.  Note that apart from the annual allowance you cannot contribute more than your earnings from employment to pensions and get the tax benefits in any one tax year.  There is no carry over of earnings.

jim8888

I'd tend to also say plunge as much into the SIPP as possible. The only caveat is how much flexibility you might want for lump sums of cash to be tax free in future. It looks like the pension will continue to allow you to take 25% of the pot tax free and that the politicians aren't going to alter that in the near term, although you never know. However that may, or may not, give you enough flexibility with cash depending on your plans. I wouldn't stop investing in ISA's completely, and actually wished I had put a bit more into this wrapper when I came to taking my pensions.

mostlyclueless

Would you go as far as to using the ISA to top up the SIPP subject to allowances?

Steve_666_

Use  the ISA for monies that cant go into the SIPP, inheritance, lottery wins, share options etc etc.

You could use ISA money to top up your living costs, whilst increasing your SIPP for the 40% relief, remember that money in an ISA has already passed thru the tax system...

Albermarle

mostlyclueless said:

Would you go as far as to using the ISA to top up the SIPP subject to allowances?

It is not uncommon for people to use savings to add to a pension, to get the maximum tax relief they can. Especially the maximum 40% tax relief possible.
Alternatively you can live off savings and put more of your earnings in.
Typically this is something that will happen in the final years of work, when salary is higher and outgoings have dropped ( kids grown up, mortgage paid off etc)