SIPP or S&S ISA more effective?

j813ys

What would be the most effective way to invest for 20 years to have the largest pot to retire at 57, so that I can bridge 10 years to other pensions accessible at normal pension age?

Marcon

j813ys said:

What would be the most effective way to invest for 20 years to have the largest pot to retire at 57, so that I can bridge 10 years to other pensions accessible at normal pension age?

Loads of threads on this forum about ISA v SIPP. Major difference is tax relief on contributions to a SIPP. Have a browse/google for plenty of views!

Voyager2002

j813ys said:

What would be the most effective way to invest for 20 years to have the largest pot to retire at 57, so that I can bridge 10 years to other pensions accessible at normal pension age?

Assuming that you currently pay income tax, a SIPP is likely to be a better choice. You will receive tax relief now to add to any money that you put into it, and the total amount (your contributions plus the tax relief) will be invested and grow over the next twenty years. With an ISA there would be no tax relief now, so the amount invested now would be lower. 

Of course, in 20 years time you could withdraw everything from your ISA without paying any tax, while withdrawals from your SIPP would be subject to income tax.

Peterrr

Your post implies you are 37, so I'd suggest you jump aboard a Lifetime ISA before the cut off at aged 40... The government adds 25% on top of your own contribution (limited to £4k/year) and its all tax free on withdrawal when you reach retirement age.

Roger175

Pension, by far. If you're a standard rate tax payer both before and after retirement you will be 6.25% better off. Any higher rate tax relief gets you up to 25% better off, but the bit which is often forgotten is that if you retire early and have no taxable income for a few years, (until you reach SPA) then you will be substantially better off as you can draw up to the tax threshold without paying any tax. 

I'm in exactly this position having retired at 60. I actually have plenty of cash/ISA money available, but will be drawing the max I can from my pension each year to get it out tax free. This represents an amazing uplift on what I've put in over the years - on money on which I've had 40% tax relief, I calculate I'll be gaining 66.6% (£10,000 in the pension has only cost me £6,000).

That having been said, do a bit of both (pension & ISA) - in 20 years time, I don't reckon it will be age 57 and it keeps all your options open.

m_c_s

Current legislation is for State Pension age to increase to 68 in 2044 so likely that you won't be able to access your SIPP until you are 58. If you are currently 37 you may need to consider funding the year between ages 57 and 58 and a S&S ISA could be the ideal financial vehicle for that. 
I think there is a transition phase between 2044 and 2046 so worth making sure where you are in that period. 

Linton

One factor to consider would be if you were in danger of paying higher rate tax in retirement.  Taking income from an S&S ISA would reduce the problem.  Given the maximum contribution  of £20K this could take some years to build up to a worthwhile level.

barnstar2077

As suggested above a hybrid approach is probably the most likely to succeed.  I am 47 and would like to retire at 55, so I am investing in an S&S ISA to bridge the gap until 57, while also contributing extra to my pensions too.

Once I hit my goal for my ISA I will switch to putting everything into the pensions.  I could put less into my ISA now and plan to have just the right amount in there at just the right time, but the ISA also gives me a lot of options if I should find myself redundant at 53 say.

MK62

Peterrr said:

Your post implies you are 37, so I'd suggest you jump aboard a Lifetime ISA before the cut off at aged 40... The government adds 25% on top of your own contribution (limited to £4k/year) and its all tax free on withdrawal when you reach retirement age.

A LISA is worthwhile,  but the annual contribution limit, plus the contribution cut off limit at 50yo, coupled with the withdrawal age limit of 60yo, means that a SIPP would likely also be required to meet the OPs goals (could use an ISA too, or instead of a SIPP, but as mentioned, usually not quite as tax efficient)......

cloud_dog

j813ys said:

What would be the most effective way to invest for 20 years to have the largest pot to retire at 57, so that I can bridge 10 years to other pensions accessible at normal pension age?

Are you a higher rate tax payer?

Are you paid under a Salary Sacrifice arrangement?