Actual tax benefit of SIPP vs ISA

barnstar2077

As others mentioned, salary sacrifice and retiring years earlier than state pension age have a big effect on how much tax you eventually pay.  I am not smart enough to work out some examples though! 

Qyburn

It's funny that "only 6.25%" is even being mentioned, given how many posters regularly move their saving between banks to gain an extra 0.25% or less.

Ciprico

Pension contributions also effectively reduce your gross salary which can have a significant impact on childcare benefits, your Personal Savings Allowance, your kids university loans! and probably many other thresholds too....

spacemongoose

Qyburn said:

It's funny that "only 6.25%" is even being mentioned, given how many posters regularly move their saving between banks to gain an extra 0.25% or less.

I'm certainly not saying that 6.25% isn't welcome - it's just that 'put money in a SIPP, get full tax relief, and have a bigger pot which grows faster' gives the impression that there is a much bigger advantage.  And in many situations noted in this thread, there is.  But in some cases it amounts to 6.25%. So it's 'only' in comparison to other situations.

spacemongoose

Ciprico said:

Pension contributions also effectively reduce your gross salary which can have a significant impact on childcare benefits, your Personal Savings Allowance, your kids university loans! and probably many other thresholds too....

That is a very important point, thank you.
If pension contributions get you out of the high rate tax band, then there are many indirect benefits of that, in addition to the tax savings themselves.

dunstonh

spacemongoose said:

Qyburn said:

It's funny that "only 6.25%" is even being mentioned, given how many posters regularly move their saving between banks to gain an extra 0.25% or less.

I'm certainly not saying that 6.25% isn't welcome - it's just that 'put money in a SIPP, get full tax relief, and have a bigger pot which grows faster' gives the impression that there is a much bigger advantage.  And in many situations noted in this thread, there is.  But in some cases it amounts to 6.25%. So it's 'only' in comparison to other situations.

I think its more a sum of all of its parts, but scenario driven as not all things available to everyone.
e.g. (in addition to others already mentioned)
Salary sacrifice
Employer contribution
Earlier than state pension personal allowance use (£16,760 tax free from the pension). 
Company directors getting money out of the company avoiding corporation tax, dividend tax, income tax and NI
Higher rate relief in working life but basic rate in retirement.