Pensions v ISA

Hen1013

Hi there just want to get people’s opinions on the following:-
I’m 62 years old and looking to retire in the next 2-3 years. I currently have a SIPP (300k) as my main pension and two much smaller ones which I’m planning on consolidating in the next few months. I also have two cash ISA’s which have a combined value of ~50k. Can anybody think of any reason why I shouldn’t cash- in the cash ISA’s and over the next few years transfer the proceeds to my SIPP which would also give me an additional £12.5k tax relief. 

Comments welcome. 

Marcon

Hen1013 said:

Hi there just want to get people’s opinions on the following:-
I’m 62 years old and looking to retire in the next 2-3 years. I currently have a SIPP (300k) as my main pension and two much smaller ones which I’m planning on consolidating in the next few months. I also have two cash ISA’s which have a combined value of ~50k. Can anybody think of any reason why I shouldn’t cash- in the cash ISA’s and over the next few years transfer the proceeds to my SIPP which would also give me an additional £12.5k tax relief. 

Comments welcome. 

Why would you do that? Payments from your ISA are tax free. If you withdraw them to pay into your SIPP, 75% of the benefits you take later will be taxable.

If you make SIPP contributions for your earnings rather than your ISA, then you'll get tax relief on those - and if necessary can replenish your 'cash supplies' from your ISA.

QrizB

A couple of things to keep in mind:

You'll get tax relief going in but will then pay tax on 75% of it when you take it back out. That's a 6.25% gain before charges, assuming you are a 20% taxpayer and will continue to be one in retirement.

You might want to keep a cash float outside your pension to bridge over any delays in putting the pension into payment (and just to simplify budgeting). Something like 6-24 months of essential spending is often suggested.

If your current employer is paying into your pension via salary sacrifice, there's a tax advantage (NI saving) if you salsac the extra income then spend your ISA to top up whatever take-home is left, rather than making personal payments into the pension.

leosayer

OP to give a meaningful answer you need to supply details of your current income, pension contributions and method contribution eg. salary sacrifice.

ali_bear

It does make sense to maximize your pension contributions in the run-up to retirement. If that means drawing on your ISA fund or other savings to supplement your income in this period, if you need to, then why not. Only when that time comes it may help to have some flexibility by keeping savings for the gap between ending paid employment and starting to draw on your pension. 

Hen1013

Thank you all for the advice. I hadn’t really appreciated the potential lag in payments from my crystallised pension (whenever that happens) and keeping funds available to bridge that gap. I’m now pretty sure I will be hanging on to the cash ISA’s. 

QrizB thank you for the information regarding salary sacrifice - my new employer (3 weeks into new job) offers salary sacrifice so I shall be looking to maximise contributions going forward.