Contributions to SIPP v ISA when close to retirement

NoMore

Secret2ndAccount said:

Yes, VeganBart is mixing his sums up, and SIPPs are more efficient - typically 6% for tax purposes.

However, I just want to point out one thing:
I currently have 50k in a Money Market Fund in my ISA, and 50k in a MMF in my SIPP. I have decided to keep one half of the sure and steady investment, and move one half into high-risk tech equities, in the hope of doubling my money. I should buy the tech equities in my ISA. If I double my money, the extra 50k will be tax free. If I doubled it in the SIPP, the extra 50k would be taxed at 15%
That's for money already inside the wrappers, where the tax relief is in the past. Keep your safe stuff in your SIPP, and your growthy stuff in your ISA.

But 50k in ISA is not equivalent to 50k in SIPP. Its equivalent to 62.5k at basic tax relief, which brings us back to the maths already described in this thread and you still come out 6.25% ahead with the SIPP after tax.

sofm

I'm surprised there isn't a sticky/pinned thread/post, with a worked example, as this question arises again and again.

e.g. covering 6.25% advantage of SIPP over ISA, if a basic-rate taxpayer when paying in, and a basic-rate taxpayer when taking out.

Pre SPA or without full state pension, and zero/insufficient other earnings, when taking out then the advantage is higher.  Or if when paying in one is intermediate/higher/advanced/top rate tax payer, then there is a big win.

Assuming fees are equivalent, and with the constraint that SIPP cannot be withdrawn until Normal Minimum Pension Age (55/57), except for certain health grounds or if you want a punitive tax bill.  With a nod to tax diversification.

NoMore

The below is a very useful table that compares the differences between Pension/ISA/LISA when contributing and withdrawing at different Tax rates.

Source: PSA: Pension Tax Efficiency / Return on Investment - April 2024 : r/UKPersonalFinance

This also assumes you do not exceed the maximum tax free lump amount when you go to drawdown your pension (currently £268,275 (requiring a pension pot value of £1,073,100).

Most Common Scenarios:

Current Tax Band	Pension Tax Band	Retirement Savings Vehicle	ROI
Basic Rate	Basic Rate	Salary Sacrifice Pension	18.06%
Higher Rate	Basic Rate	Salary Sacrifice Pension	46.55%
Basic Rate	Basic Rate	SIPP (or other non-SS pension)	6.25%
Higher Rate	Basic Rate	SIPP (or other non-SS pension)	41.67%
Basic Rate	Basic Rate	LISA	25.00%
Higher Rate	Basic Rate	LISA	25.00%
Basic Rate	Basic Rate	ISA	0.00%
Higher Rate	Basic Rate	ISA	0.00%

Less Common Scenarios:

Current Tax Band	Pension Tax Band	Retirement Savings Vehicle	ROI
Higher Rate	Higher Rate	Salary Sacrifice Pension	20.69%
Higher Rate	Higher Rate	SIPP (or other non-SS pension)	16.67%
Higher Rate	Higher Rate	LISA	25.00%
Higher Rate	Higher Rate	ISA	0.00%

Very Unlikely Scenarios:

Current Tax Band	Pension Tax Band	Retirement Savings Vehicle	ROI
Basic Rate	Higher Rate	Salary Sacrifice Pension	-2.78%
Basic Rate	Higher Rate	SIPP (or other non-SS pension)	-12.50%
Basic Rate	Higher Rate	LISA	25.00%
Basic Rate	Higher Rate	ISA	0.00%

Exodi

NoMore said:

The below is a very useful table that compares the differences between Pension/ISA/LISA when contributing and withdrawing at different Tax rates.

Source: PSA: Pension Tax Efficiency / Return on Investment - April 2024 : r/UKPersonalFinance

Now with the added benefit that the increase to 15% for Employers NIC will indirectly benefit Salary Sacrifice arrangements where the saving is shared or split. SS becomes even more lucrative from this April.

Notepad_Phil

NoMore said:

Secret2ndAccount said:

Yes, VeganBart is mixing his sums up, and SIPPs are more efficient - typically 6% for tax purposes.

However, I just want to point out one thing:
I currently have 50k in a Money Market Fund in my ISA, and 50k in a MMF in my SIPP. I have decided to keep one half of the sure and steady investment, and move one half into high-risk tech equities, in the hope of doubling my money. I should buy the tech equities in my ISA. If I double my money, the extra 50k will be tax free. If I doubled it in the SIPP, the extra 50k would be taxed at 15%
That's for money already inside the wrappers, where the tax relief is in the past. Keep your safe stuff in your SIPP, and your growthy stuff in your ISA.

But 50k in ISA is not equivalent to 50k in SIPP. Its equivalent to 62.5k at basic tax relief, which brings us back to the maths already described in this thread and you still come out 6.25% ahead with the SIPP after tax.

I'm not sure I follow you. I agree with the 6.25% advantage if you're talking about a sum of money and on deciding whether to put it into an ISA or a SIPP, but Secret2ndAccount is talking about money that is already in an ISA and a SIPP, so in that case keeping the potential high returning assets within the ISA makes sense.

They might have been better off now had they originally put the money into a SIPP rather than an ISA, but that's now in the past. They might be like me and retired, so can only put £3.6k into a SIPP whereas I can still put £20k into an ISA, or may have decided that they wanted the flexibility of an ISA which they could withdraw from before retirement age, etc.

Albermarle

Secret2ndAccount said:

Yes, VeganBart is mixing his sums up, and SIPPs are more efficient - typically 6% for tax purposes.

However, I just want to point out one thing:
I currently have 50k in a Money Market Fund in my ISA, and 50k in a MMF in my SIPP. I have decided to keep one half of the sure and steady investment, and move one half into high-risk tech equities, in the hope of doubling my money. I should buy the tech equities in my ISA. If I double my money, the extra 50k will be tax free. If I doubled it in the SIPP, the extra 50k would be taxed at 15%
That's for money already inside the wrappers, where the tax relief is in the past. Keep your safe stuff in your SIPP, and your growthy stuff in your ISA.

However if the high risk tech equities bomb out, then you would be better with them in your SIPP, as less tax to pay on a smaller fund.