Keep saving into SIPP, or leave it?

Albermarle

You probably need to make a calculation about the pros and cons of adding more to your or her pension.
You get 40% tax relief. Later you can take 25% tax free and probably 20% tax on the rest.
She will get 20% tax relief ( I have assumed this) and for a number of years ( between retiring and getting the state pension) she will probably pay no tax on withdrawals.
It looks like proposals to reduce higher rate relief, and/or increase lower rate relief, are unlikely to feature in the budget, as it would cause a lot of complication trying to change the current system.

MX5huggy

adamjoeite said:

MX5huggy said:

Are you aware that your NHS pensions are payable with reductions from 55? The reduction only reflects the early payment there’s no true penalty. Our plan is to take our NHS and LGPS pensions when we retire without lump sums to maximise inflation linked income. 

https://www.nhsbsa.nhs.uk/sites/default/files/2019-08/Early%20Retirement%20factsheet%20%2805.2017%29%20V3.pdf

I was aware that the pensions would be available with reductions from 55 but I hadn't yet properly worked out whether this would financially be the best choice. 
I believe it would be a 21% reduction to take it at 55, so if my 95 pension was to be say 16k at 60, I would receive ~12.5k at 55. I would be in my late 70s before I would have got more out of taking it at 60... so it's worth considering. It just depends if other finances available to me at 55 make it more sensible to leave drawing that pension until 60.

What do you mean about retiring without your NHS lump sum... I was under the impression the lump sum under the 95 scheme was compulsory? Can it be added to your pension instead?

95 scheme lump sum is compulsory 2015 scheme is not. 

I think (please check) that spousal pension is not reduced by you taking it early. But as you say you have to live an average life expectancy to make back waiting for the pension. 

adamjoeite

Albermarle said:

You probably need to make a calculation about the pros and cons of adding more to your or her pension.
You get 40% tax relief. Later you can take 25% tax free and probably 20% tax on the rest.
She will get 20% tax relief ( I have assumed this) and for a number of years ( between retiring and getting the state pension) she will probably pay no tax on withdrawals.
It looks like proposals to reduce higher rate relief, and/or increase lower rate relief, are unlikely to feature in the budget, as it would cause a lot of complication trying to change the current system.

Yes you're right, I need to do the sums as to whether it is more beneficial over the next few years to add (made up figure) 100k to my SIPP at 40% relief, given that it would add 25% tax free and the rest at 20%, or start a SIPP for her at 20% relief, invest the same amount and have it potentially all available tax free. Compounding dividend reinvestment probably comes into play in those calculations depending on which SIPP it goes into and I don't think my brain is up for those sums today haha.

adamjoeite

MX5huggy said:

adamjoeite said:

MX5huggy said:

Are you aware that your NHS pensions are payable with reductions from 55? The reduction only reflects the early payment there’s no true penalty. Our plan is to take our NHS and LGPS pensions when we retire without lump sums to maximise inflation linked income. 

https://www.nhsbsa.nhs.uk/sites/default/files/2019-08/Early%20Retirement%20factsheet%20%2805.2017%29%20V3.pdf

I was aware that the pensions would be available with reductions from 55 but I hadn't yet properly worked out whether this would financially be the best choice. 
I believe it would be a 21% reduction to take it at 55, so if my 95 pension was to be say 16k at 60, I would receive ~12.5k at 55. I would be in my late 70s before I would have got more out of taking it at 60... so it's worth considering. It just depends if other finances available to me at 55 make it more sensible to leave drawing that pension until 60.

What do you mean about retiring without your NHS lump sum... I was under the impression the lump sum under the 95 scheme was compulsory? Can it be added to your pension instead?

95 scheme lump sum is compulsory 2015 scheme is not. 

I think (please check) that spousal pension is not reduced by you taking it early. But as you say you have to live an average life expectancy to make back waiting for the pension. 

I didn't even think about spousal pension being affect by me taking pension early 🤔 I should check that. I think I did my sums a little wrong earlier as I ignored compound interest. 
A 13,300 pension now in the 95 scheme increases by 1.5% + CPI each year if you stay in the scheme. If I ignore cpi as it's unknown, at 55 the pension would be worth 16,600 (then 21% reduction to 13,100) and at 60, 18,000. So it would be early 70s when you would start "losing out" by having taking the pension early. Still worth considering though if it means 5 years less work... also the 1.5% increases would apply between 55-60 if you stopped working and lived off savings until drawing full pension at 60.

kempiejon

it would be beneficial to look at how you use the SIPP and personal allowances.

I was able to add all my relevant earning to my SIPP for a few years while I lived off my savings/investments. This was to get all my investments sheltered from dividend tax. A bonus I did reap was the rebate for tax not paid on the personal allowance of £10.5k as it was in those days. Add that into the SIPP calculation and the use of the allowance from 55 when taking income squeezes a little bit more from the system.
I think that all adds up making the SIPP better than the LISA. Add £12.5k to the SO's SIPP add extra to your own for the reduction of 40%

Of course the SIPP is also handy as monies are protected from bankruptcy and not included for means tested benefits nor the estate for inheritance tax. 

adamjoeite

kempiejon said:

This was to get all my investments sheltered from dividend tax. A bonus I did reap was the rebate for tax not paid on the personal allowance of £10.5k as it was in those days. Add that into the SIPP calculation and the use of the allowance from 55 when taking income squeezes a little bit more from the system. 

Sorry if I'm being stupid, but I don't quite understand this paragraph... what do you mean by the rebate for tax not paid on PA, and could that apply to me if I retired at say 50-55 but continued to pay into SIPP until starting to draw it at 58? Also would that 'bonus' be negated by me drawing my NHS pension early at 55? I'm a little confused about that

adamjoeite

LHW99 said:

Also have you checked both your state pensions?

After that time, additional NI contributions will increase your SP entitlement, however if leaving work before normal SPA (67 / 68) you / she could be left short. The actual number of years contributions here to get the full NSP has ranged from around 28 to nearly 50!.

if you could be short, paying missing post-2016 years in due course is likely to be worthwhile.

I checked our state pension forecast earlier and both of us need 16 more years for it to be available in full when SPA comes around. We're both 40, so that would suggest that at 56 we'd have contributed enough for full SP. Of course if I retired earlier than that, or, more likely, my wife stops working for the NHS in the next few years, we might have to work out what we'd need to do to fill those required years

kempiejon

adamjoeite said:

kempiejon said:

This was to get all my investments sheltered from dividend tax. A bonus I did reap was the rebate for tax not paid on the personal allowance of £10.5k as it was in those days. Add that into the SIPP calculation and the use of the allowance from 55 when taking income squeezes a little bit more from the system. 

Sorry if I'm being stupid, but I don't quite understand this paragraph... what do you mean by the rebate for tax not paid on PA, and could that apply to me if I retired at say 50-55 but continued to pay into SIPP until starting to draw it at 58? Also would that 'bonus' be negated by me drawing my NHS pension early at 55? I'm a little confused about that

When one invests into a SIPP the provider claims back 25%. They claim this back on all monies including on the personal allowance of £12500 though no tax is paid on that amount. One could claim more tax than was paid.

You can retire when you want - give up work - you can keep paying into a SIPP and claiming tax relief until aged 75. You can only add to your SIPP relevant earnings, NHS pensions for example isn't relevant earnings.
Taking a defined benefit pension like the NHS one doesn't reduce the amount you can add to a SIPP.

There is a bit of balance between LISA with rebate and untaxed withdrawals vrs SIPP and 25% untaxed 75% taxed withdrawls and the reclaimed tax, you paying some at 40%.