Should I contribute more to my SIPP?

RobfromCornwall

I'm in a fortunate position.  I earn c£60 gross, and can expect c£20k in savings interest this year.  I have a SIPP of £35k (so far) and will have a significant DB pension too.  I would rather avoid paying c£8k of tax on savings interest, as well as potentially staying below the 40% tax threshold.  Everything I can get into ISA is currently there.  

I think I know the answer to this already, but pulling the trigger on adding another £60k to my SIPP for this year (I have added some already, but didn't use my allowance last year, so can carry forward) is easier said that done as it involves locking up the money for 20 years.

I fully expect people to tell me what I already know, but there might be something obvious I'm missing (either in favour or against putting a decent chunk more into my SIPP).

Any thoughts appreciated. 

QrizB

RobfromCornwall said:

I think I know the answer to this already, but pulling the trigger on adding another £60k to my SIPP for this year (I have added some already, but didn't use my allowance last year, so can carry forward)

Remember that you can't get RAS tax relief on a gross contribuiton that exceeds your relvant earnings for the year. With £60k of earned income, your relevant earnings are likely to be £60k, so carry-forward is irrelevant.

ColdIron

You can't use CF until you have exhausted the current year's Annual Allowance (£60k) and you would need relevant earnings in the current year to support it as well. However you say you have 'added some' so there is potential for you to add more (up to your earnings) and reduce the amount of higher rate tax you pay

PS Even without pension contributions you wouldn't pay the full £8k on your savings interest as you only pay 40% on the income above the HR threshold (£50,270) so 20% on £10,270 and 40% on £9,730

zagfles

£20k of savings interest implies a massive amount in cash, unless it's from a shedload of regular savers etc. Paying 40% tax on a significant amount of savings is barking, even if you've used up tax free options like ISA and PBs, and don't want to invest in anything risky, you could use stuff like low coupon short dated gilts where most of the return is (tax free) capital gain. 

zagfles

ColdIron said:

You can't use CF until you have exhausted the current year's Annual Allowance (£60k) and you would need relevant earnings in the current year to support it as well. However you say you have 'added some' so there is potential for you to add more (up to your earnings) and reduce the amount of higher rate tax you pay

PS Even without pension contributions you wouldn't pay the full £8k on your savings interest as you only pay 40% on the income above the HR threshold (£50,270) so 20% on £10,270 and 40% on £9,730

I read it that OP had £20k savings interest on top of £60k earnings, so would pay 40% on all the savings without pension conts. 

Marcon

RobfromCornwall said:

I'm in a fortunate position.  I earn c£60 gross, and can expect c£20k in savings interest this year.  I have a SIPP of £35k (so far) and will have a significant DB pension too.  I would rather avoid paying c£8k of tax on savings interest, as well as potentially staying below the 40% tax threshold.  Everything I can get into ISA is currently there.  

I think I know the answer to this already, but pulling the trigger on adding another £60k to my SIPP for this year (I have added some already, but didn't use my allowance last year, so can carry forward) is easier said that done as it involves locking up the money for 20 years.

I fully expect people to tell me what I already know, but there might be something obvious I'm missing (either in favour or against putting a decent chunk more into my SIPP).

Any thoughts appreciated. 

If you can't access your SIPP savings for another 20 years, that suggests you are currently aged about 37 or 38. You say you will have a 'significant DB' pension, but I wonder if you are making assumptions about how many more years of DB membership you will be able to accrue between now and reaching the point of actually taking your DB pension? If you've already ceased active membership, how realistic are you assumptions about how much it will pay - possibly not for another 30+ years if don't draw it until the DB scheme's retirement age?

If you are going to get £20K of potentially taxable interest this year, then it sounds as if your whole portfolio might be ripe for a proper overhaul, or at least a bit of sensible input from an IFA. Maybe spend some of that interest on doing just that? Could be an excellent investment for you.

DRS1

Surely you won't need to contribute £60K to get below the 40% threshold?  £30K would do it.

Dazed_and_C0nfused

DRS1 said:

Surely you won't need to contribute £60K to get below the 40% threshold?  £30K would do it.

It could well be less than that.

Op has given some slightly vague info, so

I earn c£60 gross, and can expect c£20k in savings interest this year.  I have a SIPP of £35k (so far) and will have a significant DB pension too.

could actually be I have £54k in taxable earnings (after net pay contributions to a DB pension scheme are factored in) and £15k in taxable savings interest (after removing tax exempt ISA interest).

Or he could mean he has c£60k taxable earnings and c£20kc taxable savings interest.

Without proper info it's all guess work.  And residency might be a factor, could be much more than £30k north of the border 😳

QrizB

Dazed_and_C0nfused said:

Without proper info it's all guess work.  And residency might be a factor, could be much more than £30k north of the border 😳

From his user name I'm guessing he's west of Plymouth, so isn't worried about Caledonian taxes!

RobfromCornwall

I am grateful for everyone's comments and suggestions.  I apologise that some information was missing.

The assumption that I am 37 is correct.  I inherited a significant sum of money in 2022.  I have held it in cash with the aim of moving house, but a couple of sales have fallen through so I have more cash than I planned for longer.  I aim to try again within 12-18 months, but for reasons beyond my control, it might make sense to wait a little.  In addition to what I inherited, I have always been excellent at saving, adding approx 2k a month in addition to interest earned.  

I live in England.  

I have double checked my figures, and predicted (with some accuracy, I think) where I will be at the end of the financial year if I don't do anything.

Taxable Gross Pay: £53,700
Interest (outside of ISAs): £22,700
SIPP Contributions (gross): £15,500
Employee Pension contributions: £6000

My understanding is that this puts my total earnings (after SIPP contributions) at just shy of £61,000, so an additional gross SIPP contribution of £10,000 would be sensible.

I am a teacher, have been in the TPS for nearly 15 years and envisage I will continue to be so until retirement.  I believe I am on track to receive >£40,000 pa from this from the age of 68.  The SIPP might allow me to retire a little earlier and bridge the gap.

When (hopefully when not if) I move house I will reassess cash savings, but I think it's wise to keep money in cash for a little longer so I can move mortgage-free.  Although I accept there is an argument in favour of foregoing this and pursuing a mortgage, and the suggestion of seeking advice from an IFA is something I haven't discounted.  

No spouse and no dependents (and happy to keep it that way).

If, with this additional information, anyone has any other comments or pointers I would be very grateful.  

Albermarle

You can not take the interest into account.
So it is £53,700 minus £6000 ( assuming payments are made before tax) = £47,700 X 0.8 = £38,160 you can add to your SIPP.