Is this allowed or is it considered an abuse of the system?

ZeroSum

Hoenir said:

ZeroSum said:

boingy said:

ZeroSum said:

Makes no difference. Pay £100 into ISA & it doubles, drawdown £200
Pay £100 into pension, with tax relief, it doubles, get £250 which is £200 after tax

I know I've ignored the 25% tax free bit just to illustrate the maths simpler. 

The maths might be simpler but you've ignored the whole advantage of a pension! You get tax relief on everything you put in and can withdraw a quarter of it without paying any tax. That's an absolutely huge advantage over ISAs. To balance that, you do have to wait until you are 55/57 to do so.

I haven't. We're talking about a SIPP over & above work place pension. I'm assuming the work place pension will be at least personal allowance, so the tax benefits are minimal & it's a trade off with greater flexibility in the ISA. 

To a basic rate tax payer there's a 6.25% gain.  Might not sound much but over 40 years saving could amount to a considerable sum. Pay for that once in a lifetime holiday. 

Subject to current rules which could change in the future & leave you worse off. It's about not putting all your eggs in one basket 

eskbanker

ZeroSum said:

Hoenir said:

ZeroSum said:

boingy said:

ZeroSum said:

Makes no difference. Pay £100 into ISA & it doubles, drawdown £200
Pay £100 into pension, with tax relief, it doubles, get £250 which is £200 after tax

I know I've ignored the 25% tax free bit just to illustrate the maths simpler. 

The maths might be simpler but you've ignored the whole advantage of a pension! You get tax relief on everything you put in and can withdraw a quarter of it without paying any tax. That's an absolutely huge advantage over ISAs. To balance that, you do have to wait until you are 55/57 to do so.

I haven't. We're talking about a SIPP over & above work place pension. I'm assuming the work place pension will be at least personal allowance, so the tax benefits are minimal & it's a trade off with greater flexibility in the ISA. 

To a basic rate tax payer there's a 6.25% gain.  Might not sound much but over 40 years saving could amount to a considerable sum. Pay for that once in a lifetime holiday. 

Subject to current rules which could change in the future & leave you worse off. It's about not putting all your eggs in one basket 

Rules could of course change and leave those preferring pensions better off than those favouring ISAs, so that's a bit of a non-argument!

kempiejon

and then change again making pensions worse off and prefering ISAs or even unsheltered. I hope to have a many-decade investment lifetime of course the rules'll change. One of the few certainties in investing.

Hoenir

ZeroSum said:

Hoenir said:

ZeroSum said:

boingy said:

ZeroSum said:

Makes no difference. Pay £100 into ISA & it doubles, drawdown £200
Pay £100 into pension, with tax relief, it doubles, get £250 which is £200 after tax

I know I've ignored the 25% tax free bit just to illustrate the maths simpler. 

The maths might be simpler but you've ignored the whole advantage of a pension! You get tax relief on everything you put in and can withdraw a quarter of it without paying any tax. That's an absolutely huge advantage over ISAs. To balance that, you do have to wait until you are 55/57 to do so.

I haven't. We're talking about a SIPP over & above work place pension. I'm assuming the work place pension will be at least personal allowance, so the tax benefits are minimal & it's a trade off with greater flexibility in the ISA. 

To a basic rate tax payer there's a 6.25% gain.  Might not sound much but over 40 years saving could amount to a considerable sum. Pay for that once in a lifetime holiday. 

Subject to current rules which could change in the future & leave you worse off. It's about not putting all your eggs in one basket 

One can spend all day pointlessly hypothesising. Or alternatively play by the rules as they currently are. Make  a decision. Then find something more usefull to do with the remainder of the day that's productive. 

I'd suggest at the moment that the investments choosen is where the most time should be expended. 

ZeroSum

eskbanker said:

ZeroSum said:

Hoenir said:

ZeroSum said:

boingy said:

ZeroSum said:

Makes no difference. Pay £100 into ISA & it doubles, drawdown £200
Pay £100 into pension, with tax relief, it doubles, get £250 which is £200 after tax

I know I've ignored the 25% tax free bit just to illustrate the maths simpler. 

The maths might be simpler but you've ignored the whole advantage of a pension! You get tax relief on everything you put in and can withdraw a quarter of it without paying any tax. That's an absolutely huge advantage over ISAs. To balance that, you do have to wait until you are 55/57 to do so.

I haven't. We're talking about a SIPP over & above work place pension. I'm assuming the work place pension will be at least personal allowance, so the tax benefits are minimal & it's a trade off with greater flexibility in the ISA. 

To a basic rate tax payer there's a 6.25% gain.  Might not sound much but over 40 years saving could amount to a considerable sum. Pay for that once in a lifetime holiday. 

Subject to current rules which could change in the future & leave you worse off. It's about not putting all your eggs in one basket 

Rules could of course change and leave those preferring pensions better off than those favouring ISAs, so that's a bit of a non-argument!

But which ones the more likely? Pension ages increasing from 55 to 57 (likely be 58 for me). Current speculation around the future of the tax free element, certain quarters asking for income tax & NI to be merged etc etc. The noise is very much in one direction, so it's absolutely not a non argument. The fact remains is that pensions do & will have greater restrictions, with higher levels of government interference. Personally giving up a 5% tax kick back is worth it

kempiejon

I expect many can and have leveraged the tax system by much more than 5%. I agree about restriction and made my plans for ER with ISAs and unsheltered alongside my post 55 SIPP/PP SP retirement too 

boingy

ZeroSum said:

SneakySpectator said:

Dazed_and_C0nfused said:

SneakySpectator said:

dunstonh said:

I recently came to learn that if I open a SIPP and deposited the money I have in my S&S ISA into it, the government will give me an additional 20% on top.

No.

Pensions get tax relief.  Not an addition.   You get 20% relief.    i.e. You contribute £10,000 to a pension but only make an £8,000 payment.    

If you want to describe the relief as a bonus (which is risky to do as it can lead to mistakes) then it equates to 25%.   That is assuming basic rate relief or lower.

So far it's working just fine but let's say in 20 years when I'm like 55 and getting real close to being able to draw from my private pension, why wouldn't I just sell my S&S ISA and deposit all that money into a SIPP and get an instant 20% bump, while still being able to stay invested in whatever I was invested in before in my S&S ISA? Like VWRP for example.

The pension wrapper and ISA wrapper can share the same investments at the same cost.   If you have sufficient earnings later to dump the lot into the SIPP from the ISA then that is fine as long as the rules don't change.

Let's say I had £500,000 in there and then deposited that into the SIPP, I'd immediately get £100,000 extra. 

a) you can't do that as its above the annual allowanc
b) figures of that size suggest higher rate relief could apply

I could withdraw 25% per year tax free, that's a massive amount of money per year on a £500,000 balance. Way more than I could possibly spend.

No you cannot.  You can only draw 25% of uncrystallised benefits.   Once they are crystallised, you cannot draw another 25% from them.

Ah yes thank you for this! So £60,000 per year, I could do it over multiple years then? Just do £60k a year until I've got it all inside the SIPP?

There is the option of carry forward if you are a higher earner.    However, this suggests you are in the higher rate tax band which gets 40% relief on contributions in that band.

But you then say in a later post you are a low earner. So, £60k a year would not be possible (nor carry forward).

Thanks for explaining. 

So just to clarify if I deposited £50,000 into a SIPP, my balance would remain £50,000 and not become £60,000? 

Call it tax relief or a bonus or a contribution whatever you want but is it extra real money that I can withdraw at pension age or not?

You have completely misunderstood.

If you paid in a qualifying contribution of £50,000 using the relief at source method, i.e. personal contribution to a SIPP or personal pension, then the pension company would add £12,500 in basic rate tax relief.

Giving you a pension fund of £62,500.

Tax relief is 20%, not 16.66%.

I'm still confused. I understand a normal company pension, I pay in 7.5% of my pre taxed salary and my company matches it. I get a free 7.5% added on each month and it's literally free money. 

OK so just to keep things simple. I get paid and after taxes and everything I take home £2,000 per month. If I then transfer from my bank £1,000 into the SIPP, will I get a free extra 20% added onto that. 

That's basically what I want to know. 

Pensions are basically deferred pay. So you pay into it, you effectively get the tax back that you paid on that earned income. Then when you draw it down it's then treat as income so subject to usual income tax rules. So whilst it looks like you get a 25% bumper, you're not really you're just depositing untaxed money. Then when you withdraw, you get taxed. And depending on personal situation, depends on how advantageous it is. 

Personally I've gone down the isa route as tax benefits are minimal & trading them off for the increased flexibility & freedoms.

I know I'm not going to change your mind but you are just wrong mate. The tax benefits are huge, and magnified over a long time frame. Believe what you want but please don't put other people off pensions.

SneakySpectator

ZeroSum said:

SneakySpectator said:

Dazed_and_C0nfused said:

SneakySpectator said:

dunstonh said:

I recently came to learn that if I open a SIPP and deposited the money I have in my S&S ISA into it, the government will give me an additional 20% on top.

No.

Pensions get tax relief.  Not an addition.   You get 20% relief.    i.e. You contribute £10,000 to a pension but only make an £8,000 payment.    

If you want to describe the relief as a bonus (which is risky to do as it can lead to mistakes) then it equates to 25%.   That is assuming basic rate relief or lower.

So far it's working just fine but let's say in 20 years when I'm like 55 and getting real close to being able to draw from my private pension, why wouldn't I just sell my S&S ISA and deposit all that money into a SIPP and get an instant 20% bump, while still being able to stay invested in whatever I was invested in before in my S&S ISA? Like VWRP for example.

The pension wrapper and ISA wrapper can share the same investments at the same cost.   If you have sufficient earnings later to dump the lot into the SIPP from the ISA then that is fine as long as the rules don't change.

Let's say I had £500,000 in there and then deposited that into the SIPP, I'd immediately get £100,000 extra. 

a) you can't do that as its above the annual allowanc
b) figures of that size suggest higher rate relief could apply

I could withdraw 25% per year tax free, that's a massive amount of money per year on a £500,000 balance. Way more than I could possibly spend.

No you cannot.  You can only draw 25% of uncrystallised benefits.   Once they are crystallised, you cannot draw another 25% from them.

Ah yes thank you for this! So £60,000 per year, I could do it over multiple years then? Just do £60k a year until I've got it all inside the SIPP?

There is the option of carry forward if you are a higher earner.    However, this suggests you are in the higher rate tax band which gets 40% relief on contributions in that band.

But you then say in a later post you are a low earner. So, £60k a year would not be possible (nor carry forward).

Thanks for explaining. 

So just to clarify if I deposited £50,000 into a SIPP, my balance would remain £50,000 and not become £60,000? 

Call it tax relief or a bonus or a contribution whatever you want but is it extra real money that I can withdraw at pension age or not?

You have completely misunderstood.

If you paid in a qualifying contribution of £50,000 using the relief at source method, i.e. personal contribution to a SIPP or personal pension, then the pension company would add £12,500 in basic rate tax relief.

Giving you a pension fund of £62,500.

Tax relief is 20%, not 16.66%.

I'm still confused. I understand a normal company pension, I pay in 7.5% of my pre taxed salary and my company matches it. I get a free 7.5% added on each month and it's literally free money. 

OK so just to keep things simple. I get paid and after taxes and everything I take home £2,000 per month. If I then transfer from my bank £1,000 into the SIPP, will I get a free extra 20% added onto that. 

That's basically what I want to know. 

Pensions are basically deferred pay. So you pay into it, you effectively get the tax back that you paid on that earned income. Then when you draw it down it's then treat as income so subject to usual income tax rules. So whilst it looks like you get a 25% bumper, you're not really you're just depositing untaxed money. Then when you withdraw, you get taxed. And depending on personal situation, depends on how advantageous it is. 

Personally I've gone down the isa route as tax benefits are minimal & trading them off for the increased flexibility & freedoms.

I'm inclined to agree, I've gone down the ISA route simply because of the flexibility.

I don't earn enough to invest over £20k per year so the £20k limit is meaningless to me. 

I can withdraw without any penalty or tax implications. 

I can access the entire pot before retirement age if I am in a financial position to do so which could allow me to retire early. 

So would I be willing to give up all that in exchange for a bit of extra money that's completely locked away until I'm 58+, where I can only access 25% of it then have to pay tax on anything extra. For my personal goals I think the ISA option + private company pension is the better choice. 

A SIPP just isn't suitable for me and my personal financial circumstances and goals I don't think.

Hoenir

SneakySpectator said:

ZeroSum said:

SneakySpectator said:

Dazed_and_C0nfused said:

SneakySpectator said:

dunstonh said:

I recently came to learn that if I open a SIPP and deposited the money I have in my S&S ISA into it, the government will give me an additional 20% on top.

No.

Pensions get tax relief.  Not an addition.   You get 20% relief.    i.e. You contribute £10,000 to a pension but only make an £8,000 payment.    

If you want to describe the relief as a bonus (which is risky to do as it can lead to mistakes) then it equates to 25%.   That is assuming basic rate relief or lower.

So far it's working just fine but let's say in 20 years when I'm like 55 and getting real close to being able to draw from my private pension, why wouldn't I just sell my S&S ISA and deposit all that money into a SIPP and get an instant 20% bump, while still being able to stay invested in whatever I was invested in before in my S&S ISA? Like VWRP for example.

The pension wrapper and ISA wrapper can share the same investments at the same cost.   If you have sufficient earnings later to dump the lot into the SIPP from the ISA then that is fine as long as the rules don't change.

Let's say I had £500,000 in there and then deposited that into the SIPP, I'd immediately get £100,000 extra. 

a) you can't do that as its above the annual allowanc
b) figures of that size suggest higher rate relief could apply

I could withdraw 25% per year tax free, that's a massive amount of money per year on a £500,000 balance. Way more than I could possibly spend.

No you cannot.  You can only draw 25% of uncrystallised benefits.   Once they are crystallised, you cannot draw another 25% from them.

Ah yes thank you for this! So £60,000 per year, I could do it over multiple years then? Just do £60k a year until I've got it all inside the SIPP?

There is the option of carry forward if you are a higher earner.    However, this suggests you are in the higher rate tax band which gets 40% relief on contributions in that band.

But you then say in a later post you are a low earner. So, £60k a year would not be possible (nor carry forward).

Thanks for explaining. 

So just to clarify if I deposited £50,000 into a SIPP, my balance would remain £50,000 and not become £60,000? 

Call it tax relief or a bonus or a contribution whatever you want but is it extra real money that I can withdraw at pension age or not?

You have completely misunderstood.

If you paid in a qualifying contribution of £50,000 using the relief at source method, i.e. personal contribution to a SIPP or personal pension, then the pension company would add £12,500 in basic rate tax relief.

Giving you a pension fund of £62,500.

Tax relief is 20%, not 16.66%.

I'm still confused. I understand a normal company pension, I pay in 7.5% of my pre taxed salary and my company matches it. I get a free 7.5% added on each month and it's literally free money. 

OK so just to keep things simple. I get paid and after taxes and everything I take home £2,000 per month. If I then transfer from my bank £1,000 into the SIPP, will I get a free extra 20% added onto that. 

That's basically what I want to know. 

Pensions are basically deferred pay. So you pay into it, you effectively get the tax back that you paid on that earned income. Then when you draw it down it's then treat as income so subject to usual income tax rules. So whilst it looks like you get a 25% bumper, you're not really you're just depositing untaxed money. Then when you withdraw, you get taxed. And depending on personal situation, depends on how advantageous it is. 

Personally I've gone down the isa route as tax benefits are minimal & trading them off for the increased flexibility & freedoms.

I don't earn enough to invest over £20k per year so the £20k limit is meaningless to me. 

Totally meaningless to the majority of the country.  

Aretnap

SneakySpectator said:

ZeroSum said:

SneakySpectator said:

Dazed_and_C0nfused said:

SneakySpectator said:

dunstonh said:

I recently came to learn that if I open a SIPP and deposited the money I have in my S&S ISA into it, the government will give me an additional 20% on top.

No.

Pensions get tax relief.  Not an addition.   You get 20% relief.    i.e. You contribute £10,000 to a pension but only make an £8,000 payment.    

If you want to describe the relief as a bonus (which is risky to do as it can lead to mistakes) then it equates to 25%.   That is assuming basic rate relief or lower.

So far it's working just fine but let's say in 20 years when I'm like 55 and getting real close to being able to draw from my private pension, why wouldn't I just sell my S&S ISA and deposit all that money into a SIPP and get an instant 20% bump, while still being able to stay invested in whatever I was invested in before in my S&S ISA? Like VWRP for example.

The pension wrapper and ISA wrapper can share the same investments at the same cost.   If you have sufficient earnings later to dump the lot into the SIPP from the ISA then that is fine as long as the rules don't change.

Let's say I had £500,000 in there and then deposited that into the SIPP, I'd immediately get £100,000 extra. 

a) you can't do that as its above the annual allowanc
b) figures of that size suggest higher rate relief could apply

I could withdraw 25% per year tax free, that's a massive amount of money per year on a £500,000 balance. Way more than I could possibly spend.

No you cannot.  You can only draw 25% of uncrystallised benefits.   Once they are crystallised, you cannot draw another 25% from them.

Ah yes thank you for this! So £60,000 per year, I could do it over multiple years then? Just do £60k a year until I've got it all inside the SIPP?

There is the option of carry forward if you are a higher earner.    However, this suggests you are in the higher rate tax band which gets 40% relief on contributions in that band.

But you then say in a later post you are a low earner. So, £60k a year would not be possible (nor carry forward).

Thanks for explaining. 

So just to clarify if I deposited £50,000 into a SIPP, my balance would remain £50,000 and not become £60,000? 

Call it tax relief or a bonus or a contribution whatever you want but is it extra real money that I can withdraw at pension age or not?

You have completely misunderstood.

If you paid in a qualifying contribution of £50,000 using the relief at source method, i.e. personal contribution to a SIPP or personal pension, then the pension company would add £12,500 in basic rate tax relief.

Giving you a pension fund of £62,500.

Tax relief is 20%, not 16.66%.

I'm still confused. I understand a normal company pension, I pay in 7.5% of my pre taxed salary and my company matches it. I get a free 7.5% added on each month and it's literally free money. 

OK so just to keep things simple. I get paid and after taxes and everything I take home £2,000 per month. If I then transfer from my bank £1,000 into the SIPP, will I get a free extra 20% added onto that. 

That's basically what I want to know. 

Pensions are basically deferred pay. So you pay into it, you effectively get the tax back that you paid on that earned income. Then when you draw it down it's then treat as income so subject to usual income tax rules. So whilst it looks like you get a 25% bumper, you're not really you're just depositing untaxed money. Then when you withdraw, you get taxed. And depending on personal situation, depends on how advantageous it is. 

Personally I've gone down the isa route as tax benefits are minimal & trading them off for the increased flexibility & freedoms.

I'm inclined to agree, I've gone down the ISA route simply because of the flexibility.

I don't earn enough to invest over £20k per year so the £20k limit is meaningless to me. 

I can withdraw without any penalty or tax implications. 

I can access the entire pot before retirement age if I am in a financial position to do so which could allow me to retire early. 

So would I be willing to give up all that in exchange for a bit of extra money that's completely locked away until I'm 58+, where I can only access 25% of it then have to pay tax on anything extra. For my personal goals I think the ISA option + private company pension is the better choice. 

A SIPP just isn't suitable for me and my personal financial circumstances and goals I don't think.

There's nothing to do you using both. 

It's eminently sensible to keep money aside that you can access flexible for late middle age/early retirement - which means ISA.

It's also eminently sensible to save in a way that is as tax efficient as possible for mid to late retirement - which means pension.

Unless you think that you will have no need of money after the age of 58 (or 60 if you want to be pessimistic about the pension age, or maybe 65 if your want to be REALLY pessimistic) then there is no argument against keeping a significant proportion (not all) of your savings in a pension rather than an ISA.