Am I on the right lines - new SIPP

itsmecathy

Hello, and thanks to all contributers to this forum - very helpful indeed. 

My partner is 54 with v little in pensions. I am same age and am ok with LGPS. We both will have full state pension in 4 / 3 years respectively.

We were planning on paying more into partners work SHPS DC pension however it has changed to a salary exchange scheme and as he is close to minimum wage this doesn't allow sufficient payments in.

So after a lot of reading here - but still feeling very ignorant - the plan is to open a AJBell SIPP and invest £500 per month into HSBC global strategy - probably either cautious or balanced. We might be able to pay more in over time once built some more cash/ISA reserves.

The reason for doing this is to have an amount at 60 that will be enough (in combination with my LGPS) to retire and fund the gap to state pension age. Probably we would use cash savings in ISA to cover 60 - 62 for eg if not a good time to start drawdown from AJ Bell.

Does this sound like an ok plan? I've been angsting over it and delaying for ages and just want to get started.

Many thanks for any replies.

SVaz

It’s a sensible plan imo,  when it gets to around 3-5 years from retirement you could switch to building a cash pot in the Sipp to avoid selling funds if markets are low. 

With 7 years to fund,  I would have a minimum of 3 years income in cash when you come to retire. 

We are planning similar in 6 years time and will have 4 years to fund, along with my DB pension, we’ll need around £50k in cash.  

Audaxer

Once you are both in receipt of full SPs at 67, will that and your LGPS cover your retirement income in full, or will you still need to drawdown from your SIPP after that? If you plan to spend all the accumulated SIPP money between ages 60 and 67, I would keep a good percentage of it in cash as not very long for it to be invested.

itsmecathy

Audaxer said:

Once you are both in receipt of full SPs at 67, will that and your LGPS cover your retirement income in full, or will you still need to drawdown from your SIPP after that? If you plan to spend all the accumulated SIPP money between ages 60 and 67, I would keep a good percentage of it in cash as not very long for it to be invested.

Yes, my LGPS and 2 SPs will be enough from 67, we are good MSEs and it will be more disposable income than we have now. 

I see I can keep cash in SIPP with AJ Bell but only at 3.2%. Is this still better than saving into for e.g NSI at 6.2 or cash ISA - I'm thinking yes as the deposits will have tax relief added so automatically uplifted, is that right?

SVaz

You can buy into a short term money market fund, currently paying around 5%,   That’s what I’ve done with the built up cash in my Sipp ( from income funds).  

I have the Royal london one,  the fund charge is only 0.10% . 

Dazed_and_C0nfused

itsmecathy said:

Audaxer said:

Once you are both in receipt of full SPs at 67, will that and your LGPS cover your retirement income in full, or will you still need to drawdown from your SIPP after that? If you plan to spend all the accumulated SIPP money between ages 60 and 67, I would keep a good percentage of it in cash as not very long for it to be invested.

Yes, my LGPS and 2 SPs will be enough from 67, we are good MSEs and it will be more disposable income than we have now. 

I see I can keep cash in SIPP with AJ Bell but only at 3.2%. Is this still better than saving into for e.g NSI at 6.2 or cash ISA - I'm thinking yes as the deposits will have tax relief added so automatically uplifted, is that right?

You can no doubt do better than 3.2% within the SIPP with non equity options but in most situations it is better than an ISA irrespective of that.

You get 25% added to your contribution and only pay tax on 75% of the pension.

So £8,000 from you becomes a pension fund of £10,000.  That £10,000 ends up being £8,500 after tax for a basic rate payer (£2,500 TFLS and £7,500 taxed at 20%).

Turning £8,000 into £8,500 is a 6.25% return irrespective of what happens within the SIPP.

And it will be more if you are taking the taxable element out in tax years you won't have any tax to pay on it.

SVaz

Yes, by using UFPLS, you can each take out just over £16k completely tax free each year.  

itsmecathy

Thanks everyone, that really helps. My partner will not have any other taxable income between 60 and 67 so he should be able to draw what we need tax free (about £120000 pa).

Is the money market a fixed rate? I need to read up about that as not sure how it works.

SVaz

No, it moves with the SONIA inter-bank rate.
I’ll continue buying it while interest rates are above 4%.   It’s considered low risk but not totally risk free. 

itsmecathy

Thanks SVaz, I just found it on AJBell and saw that. Right, tomorrow I'm going to bite the bullet and get my OH to open a SIPP.

draiggoch

Are you using AVC’s within your LGPS as well, if you are still employed in Local Government. This could be even better than the SIPP.