Nearing Retirement and Investing £100k SIPP v ISA v other?

Bookle

I am 57, ready to stop work in next 15 months and fortunately we now have a cash lump sum of £100k I'd like to work hard for us over the next few years.

My contributions to existing company DC scheme would stop in 3 months. In remaining 12 months before my stopping work, I cannot pay into same company pension from that income (long story!).

We'd like relatively easy access (months notice or so) to any invested funds between after I stop work on 15 months and before 67. Tax bracket during that time should be lower rate as it would be my only taxable income.

Would be choosing lowest risk possible investments in all cases.

It seems the obvious investment is a SIPP to take advantage of tax relief at higher rate of 42% (Scotland) when I am still working - recognising the max. £60k annual allowance.

We could also use this/next years ISA allowance across myself and my wife for 2x £20k as we run out of pension tax relief.

Overall, a SIPP seems a bit of a no brainer with an ISA (or 2) taking care of funds above £60k - or am I missing something?

What else should I be thinking about?

DRS1

Presumably your taxable earnings in the tax year when you contribute to the SIPP will be more than £60k?

Bookle

DRS1 said:

Presumably your taxable earnings in the tax year when you contribute to the SIPP will be more than £60k?

Yes, before tax more than £60k and less than £100k

NoMore

Depending on your exact earnings and previous contributions you could put more than 60k in using annual allowance carry forward. 

DRS1

Bookle said:

DRS1 said:

Presumably your taxable earnings in the tax year when you contribute to the SIPP will be more than £60k?

Yes, before tax more than £60k and less than £100k

Good.  Don't forget that the 60K is gross (ie including the tax relief that goes into the SIPP) so you would pay in £48k and the SIPP would get the other £12k from HMRC.

If you want to pay £60k net you will have to see if you have any carry forward as @NoMore mentions.

Albermarle

DRS1 said:

Bookle said:

DRS1 said:

Presumably your taxable earnings in the tax year when you contribute to the SIPP will be more than £60k?

Yes, before tax more than £60k and less than £100k

Good.  Don't forget that the 60K is gross (ie including the tax relief that goes into the SIPP) so you would pay in £48k and the SIPP would get the other £12k from HMRC.

If you want to pay £60k net you will have to see if you have any carry forward as @NoMore mentions.

The £60K also includes employer contributions.

For carry forward it should be noted that previous to this year the allowance was £40K 

Sarahspangles

Albermarle said:

The £60K also includes employer contributions.

For carry forward it should be noted that previous to this year the allowance was £40K 

You’ll give me heart failure! Prior to 2023/24 the Annual Allowance was £40k. This is the second year of £60k.

DRS1

Albermarle said:

DRS1 said:

Bookle said:

DRS1 said:

Presumably your taxable earnings in the tax year when you contribute to the SIPP will be more than £60k?

Yes, before tax more than £60k and less than £100k

Good.  Don't forget that the 60K is gross (ie including the tax relief that goes into the SIPP) so you would pay in £48k and the SIPP would get the other £12k from HMRC.

If you want to pay £60k net you will have to see if you have any carry forward as @NoMore mentions.

The £60K also includes employer contributions.

For carry forward it should be noted that previous to this year the allowance was £40K 

Yes and though they may be stopping it seems that won't be until June.  So a couple of months worth to take into account for 2025/6 as well as for the current/past tax years if doing some carry forward sums.

MeteredOut

DRS1 said:

Albermarle said:

DRS1 said:

Bookle said:

DRS1 said:

Presumably your taxable earnings in the tax year when you contribute to the SIPP will be more than £60k?

Yes, before tax more than £60k and less than £100k

Good.  Don't forget that the 60K is gross (ie including the tax relief that goes into the SIPP) so you would pay in £48k and the SIPP would get the other £12k from HMRC.

If you want to pay £60k net you will have to see if you have any carry forward as @NoMore mentions.

The £60K also includes employer contributions.

For carry forward it should be noted that previous to this year the allowance was £40K 

Yes and though they may be stopping it seems that won't be until June.  So a couple of months worth to take into account for 2025/6 as well as for the current/past tax years if doing some carry forward sums.

Who is "they" and what might they be stopping? Any citations for this, or is this based on social media click-bait?

artyboy

Sarahspangles said:

Albermarle said:

The £60K also includes employer contributions.

For carry forward it should be noted that previous to this year the allowance was £40K 

You’ll give me heart failure! Prior to 2023/24 the Annual Allowance was £40k. This is the second year of £60k.

Indeed, that had me running back to check as we have just used up Mrs Arty's carry forward from last year on the basis the AA was £60k!

Linton

Bookle said:

I am 57, ready to stop work in next 15 months and fortunately we now have a cash lump sum of £100k I'd like to work hard for us over the next few years.

My contributions to existing company DC scheme would stop in 3 months. In remaining 12 months before my stopping work, I cannot pay into same company pension from that income (long story!).

We'd like relatively easy access (months notice or so) to any invested funds between after I stop work on 15 months and before 67. Tax bracket during that time should be lower rate as it would be my only taxable income.

Would be choosing lowest risk possible investments in all cases.

It seems the obvious investment is a SIPP to take advantage of tax relief at higher rate of 42% (Scotland) when I am still working - recognising the max. £60k annual allowance.

We could also use this/next years ISA allowance across myself and my wife for 2x £20k as we run out of pension tax relief.

Overall, a SIPP seems a bit of a no brainer with an ISA (or 2) taking care of funds above £60k - or am I missing something?

What else should I be thinking about?

The potential lower tax arising arising from drawdown from a SIPP is only one factor, and arguably not the most important...

Taxable cash in a SIPP is not that easy to access.  For the platforms I use there is only one run of the payroll system per month, normally at the start of the month. The cash must be sitting in the SIPP at least 2 weeks before the payroll date so you must have sold any investments necessary at least 3 days before that. .  So in the worst case you may have to wait about 7 weeks between deciding to withdraw some cash and getting it in your bank account. In addition there is some hassle in setting up each drawdown.

If you hold the money in your pension what investments will you use?  Just holding cash will generally give you less interest than holding it outside the SIPP.  Holding equity for money that may be needed in the next small number of years is a risk as you could be overly affected by short term price variations.

So in my view cash required in the next few years is best managed outside ones pension.  This also gives you more flexibility with varying expenditures with possible large one-offs.

Another factor to consider is that if you are in any danger of being a higher rate tax payer in retirement you should use the pre-State Pension years to make full use of the standard rate band and put the excess drawdown into an S&S ISA.