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Setting up a SIPP when drawing a DB pension and working PT

I semi-retired last year (58) and have two DB pensions. I am taking the smaller one (~£10k a year) and deferring the second one until I need it (it is actuarially reduced so makes sense to leave it in for as long as possible now that LTA has gone (though I will be paying 40% tax). 

I also work PT (self-employed) and earn between £6k and £10k a year. Most of my savings are tax-free but I have about £60k that are not and was wondering whether I can invest some of this in a pension (I max out my ISA each year), a SIPP I guess?

I don't really know much about SIPPs having only had DB pensions in the past, is it as simple as going to a platform such as Vanguard and setting up an account?

I understand I have to be careful in the amount I invest as I am already drawing on a DB pension. Given my savings, income and the pension I am drawing, how do I work out what I can invest? 

Will there still be tax relief (I am self-employed) if I invest in a SIPP, and how does this get added ?

Thanks in advance.



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Comments

  • Albermarle
    Albermarle Posts: 26,011 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    RSTime said:
    I semi-retired last year (58) and have two DB pensions. I am taking the smaller one (~£10k a year) and deferring the second one until I need it (it is actuarially reduced so makes sense to leave it in for as long as possible now that LTA has gone (though I will be paying 40% tax). 

    I also work PT (self-employed) and earn between £6k and £10k a year. Most of my savings are tax-free but I have about £60k that are not and was wondering whether I can invest some of this in a pension (I max out my ISA each year), a SIPP I guess?

    I don't really know much about SIPPs having only had DB pensions in the past, is it as simple as going to a platform such as Vanguard and setting up an account?

    I understand I have to be careful in the amount I invest as I am already drawing on a DB pension. Given my savings, income and the pension I am drawing, how do I work out what I can invest? 

    Will there still be tax relief (I am self-employed) if I invest in a SIPP, and how does this get added ?

    Thanks in advance.



    Yes it is simple to set up a new DC pension. The trickier bit is what to choose to invest in within the pension. 

    You can add up to your gross earnings, including the basic rate tax relief added by the provider. pension income does not count.
    So if you earned £8K , you could add £6,400 and the provider would add £1,600.
    Here are some links.
    Pensions: Everything you need to know for retirement - MSE (moneysavingexpert.com)
    Pensions and retirement | Help with pensions and retirement | MoneyHelper

    Also the websites of the providers can be quite informative. So have a read of Vanguard, Fidelity, Hargreaves Lansdown etc 
  • Marcon
    Marcon Posts: 13,009 Forumite
    Eighth Anniversary 10,000 Posts Name Dropper Combo Breaker
    RSTime said:


    I understand I have to be careful in the amount I invest as I am already drawing on a DB pension. 


    The fact you are already drawing on a DB pension won't matter. You aren't attempting to 'recycle' any tax free lump you received (if you chose to take one) at the time you first started to draw your DB pension, and you aren't 'flexibly accessing' a defined contribution scheme, so the annual limited of £10K doesn't apply to your contributions if you set up a SIPP. The limit will be your gross earnings - savings interest, income from your DB pension etc don't count as 'relevant earnings'. It may be your have some scope for carry forward depending on how much you've contributed in the last few years: https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward
    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
  • xylophone
    xylophone Posts: 45,427 Forumite
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    And even if  a person had no "relevant earnings", (for example had only pension income/  no income at all), up to age 75  he could still contribute up to £2880 (net) to a personal pension/SIPP and receive up to £720 in tax relief (claimed by pension provider and added to the pension account).

    https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100
  • xylophone
    xylophone Posts: 45,427 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    edited 11 October 2023 am31 9:41AM
    And just to note, you would not have to invest (in fund/shares/ETF etc) once your contribution was within the pension -  as some people do, you could just choose to stay in cash, regarding the TR in the light of interest - the pension provider might also add  actual interest to uninvested cash.

    https://moneytothemasses.com/saving-for-your-future/investing/investment-platforms-paying-the-highest-interest-rate-on-cash

    You have a wide choice of investments but perhaps a global multi asset fund might suit.

    https://monevator.com/passive-fund-of-funds-the-rivals/
  • SVaz
    SVaz Posts: 398 Forumite
    100 Posts First Anniversary
    How soon would you intend to access the Sipp for income?
    That will dictate your investments,  if you have say a 5 year timeframe then a Short term money market fund may be better, as long as interest rates stay high enough to warrant it
    A 5-10 year timeframe is a bit trickier,  a bucket strategy is my method,  a mixture of cash/MMF and mixed asset funds.  
    Long term is simple, 100% equities or close enough, a Global tracker fund ,  use income funds and you build up a cash buffer automatically. 
  • RSTime
    RSTime Posts: 115 Forumite
    Third Anniversary 10 Posts Name Dropper
    edited 11 October 2023 pm31 3:46PM
    SVaz said:
    How soon would you intend to access the Sipp for income?
    That will dictate your investments,  if you have say a 5 year timeframe then a Short term money market fund may be better, as long as interest rates stay high enough to warrant it
    A 5-10 year timeframe is a bit trickier,  a bucket strategy is my method,  a mixture of cash/MMF and mixed asset funds.  
    Long term is simple, 100% equities or close enough, a Global tracker fund ,  use income funds and you build up a cash buffer automatically. 
    To be honest I have no immediate need for the funds, at least 10 years. Would a Vanguard LifeStrategy Fund with 80% equities be a safe and low cost option (I confess that I have not read links above yet)?
  • Albermarle
    Albermarle Posts: 26,011 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    RSTime said:
    SVaz said:
    How soon would you intend to access the Sipp for income?
    That will dictate your investments,  if you have say a 5 year timeframe then a Short term money market fund may be better, as long as interest rates stay high enough to warrant it
    A 5-10 year timeframe is a bit trickier,  a bucket strategy is my method,  a mixture of cash/MMF and mixed asset funds.  
    Long term is simple, 100% equities or close enough, a Global tracker fund ,  use income funds and you build up a cash buffer automatically. 
    To be honest I have no immediate need for the funds, at least 10 years. Would a Vanguard LifeStrategy Fund with 80% equities be a safe and low cost option (I confess that I have not read links above yet)?
    Depends on what you mean by safe ;
    If you mean is Vanguard likely to go bust and all your money vanish into thin air , then the answer is no.
    If you mean that financial markets and/or the investments within VLS80 could have a catastrophic collapse so your investment drops by 90% for example. The answer is very very unlikely unless maybe  there is a nuclear  WW3 or similar.
    However the actual performance of an investment fund is unpredictable and after 10 years it maybe worth less than when you started. Or it maybe be worth more but has not kept up with inflation. Or it will just have kept up with inflation. Or it may have increased on average one or two per cent above inflation. Or it may have surged upwards and you double your money .
    Based on history an average annual small increase above inflation is the most likely, but not guaranteed,
  • Will there still be tax relief (I am self-employed) if I invest in a SIPP, and how does this get added ?
    Yes.

    The pension company will automatically dd 25% to whatever you contribute (equal to 20% of the gross contributions), courtesy of HMRC.

    You need to show this on your Self Assessment return but it won't save you any personal income tax whilst you are a basic rate payer.

    If you contribute whilst a higher rate payer your basic rate band gets increased so you can more tax at basic rate and less at 40%.  That's on top of the basic rate relief the pension company adds.
  • RSTime
    RSTime Posts: 115 Forumite
    Third Anniversary 10 Posts Name Dropper
    Just as a followup, at the moment I am paying basic tax rate thus I will get 20% tax relief added by the provider if I go for a SIPP. Once I take this pension I will also be receiving my second DB pension which will put me into higher rate tax and I will therefore be paying higher rate tax on the SIPP. Given this would I be better off keeping my savings in cash and just chasing high interest accounts (given that I am now just taxed on the interest on cash whereas if I invest in a SIPP I would be paying 40% tax on the income)?
  • Qyburn
    Qyburn Posts: 3,170 Forumite
    1,000 Posts Fourth Anniversary Name Dropper
    RSTime said:
    Given this would I be better off keeping my savings in cash and just chasing high interest accounts (given that I am now just taxed on the interest on cash whereas if I invest in a SIPP I would be paying 40% tax on the income)?
    You might be. Using the example figures from above, if you pay £6,400 then with tax relief that becomes £8,000 in the SIPP.

    When you take it out 25% will be tax free, the remainder taxed at 40% meaning (if my maths is correct) you would receive £5,600. 
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