Pension return vs best savings rates

jesone

I have two pension plans, neither of which is performing and only one has not actually lost value over the last 12 months. I noticed today that there is a savings account offering 6.1% interest when fixed for a 12 month period. Are there any downsides to taking my money from SIPP's and putting it into the savings account for 12 months and making the £18,457 in interest? Currently have approx £302k.

Doctor_Who

jesone said:

I have two pension plans, neither of which is performing and only one has not actually lost value over the last 12 months. I noticed today that there is a savings account offering 6.1% interest when fixed for a 12 month period. Are there any downsides to taking my money from SIPP's and putting it into the savings account for 12 months and making the £18,457 in interest? Currently have approx £302k.

Are you 55 or over and so able to access the money in your SIPP? If you do withdraw money from the SIPP, 25% will be tax-free and the rest will be taxable, hence you will be liable to considerable income tax if you withdraw everything in one go. This is not what pensions were designed for! There are ways to invest in cash-like funds within the SIPP.

MX5huggy

You basically can’t do that. Either because you are too young to take any money out of a SIPP (how old are you), if you’re over 55 then if you took all of the money out of the SIPP after the tax free 25% you would be taxed as if you had earned all the money in this tax year so 20% up to £50k 40% from 50 to £125k and 45% on anything over £125k. 

You can change the investments in the SIPP to a lower “risk” or even cash but you won’t get 6% on it. 

Linton

Several downsides....
1) You know how the pension has performed over the last 1 year, you do not know how your penson will perform in the next 12 months.  So you might lose out.
2) How do you take your money from your SIPPs?  Are you 55 or over, if not you can't.
3) You will be liable for tax when you withdraw the money.  Taking £302K in a single lump sum will put you well into the 45% tax band
4) How do you get your money back into your pension?   Once you take any taxable income you are limted to contributing £10K/year.
5-n) etc etc

jesone

Hey all, thanks for the advice & clarity. Much appreciated.

Doctor_Who

You might find it useful to read through these links:

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

MSE Pensions need-to-knows

dunstonh

I have two pension plans, neither of which is performing and only one has not actually lost value over the last 12 months. 

"actually lost value over the last 12 months" is not a problem and quite common.    Approx 1 in 5 years will be negative.

When you get a double digit growth year, you don't treat that as the norm any more than you treat a negative year as the norm.

For example, here is twenty years:


Look at 2008 and you see a similar loss year.  Just look at the years that followed.   If you did what you propose in 2008, it would have been a costly mistake.

Pat38493

jesone said:

I have two pension plans, neither of which is performing and only one has not actually lost value over the last 12 months. I noticed today that there is a savings account offering 6.1% interest when fixed for a 12 month period. Are there any downsides to taking my money from SIPP's and putting it into the savings account for 12 months and making the £18,457 in interest? Currently have approx £302k.

To add to other responses, a lot of our pensions lost money over the last 12-18 months.  This doesn't mean they will continue to lose money in the next year - in fact it arguably makes it more likely they will gain next year.  Unless you are planning to take some of all of the money out in the next few years, you are very probably beter off leaving it where it is as these are designed as long term investments which will certainly lose money in some years, but will over the long term very likely gain you more than a savings account.

In other words it's just as likely that if you take the money out, you will find out later that it would have made 20% if you left it in.  (additionally to all the other issues and losses you will face as detailed in other responses).

Pipthecat

From Pension tax calculator - Which?

Total tax you will pay:

£88,128

Total lump sum after tax:

£213,872

peterg1965

You can benefit from 'cash savings rates' within a pension. However, the Pension will need to be in a full SIPP which permits access to 3rd party SIPP deposit accounts.  I know this as its exactly what i am currently doing.

I have an InvestAcc Minerva SIPP and have £220k deposited in a United Trust Bank 3 year bond at 4.3%.  The current rate for new applicants is 4.8% over 3 years.  The best rate for a 1 year fixed rate bond is 4.7%, again with UTB.