£600K - prioritise ISA v SIPP for new money?

Aminatidi

I'm starting to realise that whilst I don't know what the hell "the plan" is yet I'm starting to have more and more thoughts about doing something to reduce work.

I can't put any detail on that as I really don't have any - just finding the idea pops into my mind a little more than it used to.

So I'm 49 and right now the numbers are:

Cash £34K
ISA £260K
GIA £159K
DC £138K
DB around £7K according to the USS projector

Zero debt/mortgage free.

Annual salary is £62K/year and right now I spend around £1-1.5K and the rest goes as follows monthly.

Salary sacrifice direct into DC pension £1250K + approx £450 employer contribution

Approx £2000 into the ISA and any overflow goes into the GIA.

Appreciate this is a very broad question but at what point would the suggestion be to open a SIPP and prioritise that over the ISA?

I've always been very hesitant to lock money away but as 50 approaches and knowing one of my DC pensions has a protected age of 55 I'm perhaps less cautious about it than I was.

I feel like I'm at a point where I'm still not convinced there's value to speaking to an advisor or planner but the size of the pot plus my age means I need to plan/think a little more seriously now about getting things right 👍🏼

kimwp

I think you need a plan first. What do you want your retirement income to be and when do you want to retire fully would be a good start.

InvesterJones

Aminatidi said:

Appreciate this is a very broad question but at what point would the suggestion be to open a SIPP and prioritise that over the ISA?

It depends on when you want to retire and what you want to spend when you do.

In broad answer terms, you will need enough in your ISA/GIA etc. to cover you until you can access your SIPP as a minimum. And then enough in your SIPP/ISA to cover your plans going forwards.

Aminatidi

There really is no plan.

I spend roughly what I've outlined above so I think in spreadsheet land the F U money is there and I could hand in my notice tomorrow.

I won't do that because I still enjoy what I do but I have no idea how long I'll work for (and shades of grey like reducing days and so on) so I accept it can only be a very broad question 😀

I've seen conflicting suggestions around prioritising a SIPP v an ISA.

Ignoring the obvious "you can't access the SIPP" side of things the compelling argument seems to be the tax advantages from the automatic uplift on the way in and the possibility of not paying (as much) tax on the way out depending on the amount.

InvesterJones

If the tax system doesn't change by then, then yes, there's the 25% tax free lump sum from a SIPP that you don't get from an ISA (having paid tax before you put the money in). More so if you are a higher rate payer now but plan to be a basic rate when drawing from pension. However that depends on your plans, and of course, things staying the same.

El_Torro

Considering that you have £260k in your ISA and £159k in your GIA, would you say that you have enough investments outside of pensions already? I think you do. What I think doesn't really matter though. One option would be to get as much of your GIA as possible into your ISA over the coming years. The £2k a month not going into your ISA from your salary could then go into your pension via salary sacrifice. 

With what's going into your pension now you are already out of the 40% tax bracket, which is good. If you up your salary sacrifice contributions though you'll also be paying less NI. 

If you continue to spend £1,500 a month and your investments grow at least as fast as inflation you currently have over 23 years worth of expenditure in your ISA and GIA. 

Just my take on it. Without knowing when you plan to retire it's not easy to say for sure what the right course of action is. 


EDIT: My above plan means you'll be salary sacrificing so much you'll be below minimum wage, assuming you work full time. So that's not an option. Alternatively just sal sac enough to get you to minimum wage. Any surplus can then go into your ISA or you can make personal contributions to a pension (no NI saving by doing this though). 

MX5huggy

You have enough in ISA/ GIA (keep moving the GIA to ISA). As it s salary sacrifice I would be maximising that be fore using the SIPP option because you will save the 8% NI on top of 20% on contributions from 20% taxed income. 

Albermarle

As above .
A SIPP is only a type of DC pension.
You have a DC pension at work that you can use salary sacrifice with, so just add more to that.

Aminatidi

Thanks all - appreciate it so far

My one reservation with additional salary sacrifice is my employer can't easily/quickly do "one off" payments - they need notice.

So whilst I do take the point about the additional NI saving that might be something that has to give in order to have the flexibility to just put in a grand here or two grand there etc.

The pension is Aviva and I can add to it via debit card but limited choice of funds plus no salary sacrifice so if I was doing ad-hoc contributions it felt simpler to just have a SIPP with access to the whole of the market.

It seems the no-brainer is to not add any more to the GIA and to look at using CGT allowances to feed the ISA or SIPP from the GIA?

Basically no new money in the GIA?

El_Torro

Putting new money into an ISA or SIPP or workplace pension is preferable to putting it in a GIA, yes. 

What I don't understand is why you would need to make one off payments to your pension. Since you are saving £2k a month why not just save less every month and have more going into your workplace pension? 

If you sometimes have higher expenditures that's what your cash reserves / emergency fund is for.

Albermarle

The pension is Aviva and I can add to it via debit card but limited choice of funds plus no salary sacrifice so if I was doing ad-hoc contributions it felt simpler to just have a SIPP with access to the whole of the market.

Having access to 'the whole of the market' sounds good in theory, but can be a double edged sword.
For example an inexperienced investor, might invest in something inappropriate, like individual shares for example. Or they might follow the guidance/marketing on the SIPP website and end up in an expensive fund.
So I would really think about the detail of how you would like to invest in the SIPP, and then look again at the funds and charges with Aviva ( workplace pensions often have low fees/discounts) before making the decision.