Basic SIPP starter advice

DRS1

If you are using salary sacrifice for the LGPS contributions you may well have hit the most you can contribute that way. This is because you can't salary sacrifice below the national minimum wage.

However if there is still scope to up the salary sacrifice contributions to LGPS it might be a good idea to compare the benefits you may get from those contributions with the benefits of the SIPP contributions. One thing which gets mentioned on here is that AVCs to the LGPS can be taken as the tax free lump sum and that can utilise 100% of those AVCs (depending on the figures). By contrast you would only ever get 25% of the SIPP as a tax free lump sum.

Not to mention that salary sacrifice saves you some NICs as well which the SIPP contributions won't.

Of course that is not the only factor to weigh up - you may be able to take the SIPP benefits earlier than you want to take the LGPS benefits.

Yorkie1

Just paging @Silvertabby , who is one of the forum's experts on the LGPS

Silvertabby

It may be possible to pay 100% of your pensionable pay into an AVC, if that is what you want. But that may not apply if your employer offers salary sacrifice - you would have to check with them.

Most people pay into LGPS AVCs for the double tax benefits - tax relief in, tax free (up to HMRC limits) out. Plus using AVCs as the source of your tax free cash means you can avoid commuting part of your annual pension at the p.poor rate of 1:12.

And there is still the option of using some or all of your AVC fund to buy additional fully index linked LGPS benefits.

Triumph13

One key question is do you plan to start drawing your LGPS pension as soon as you stop working, or did you want to leave it deferred for a while to minimise any actuarial reductions for taking it early?

If the former, then AVCs almost certainly win over SIPP because of being able to take them cash free at the point you start taking the LGPS benefits.

If the latter, then the SIPP might be much better from a cashflow standpoint, and you would get out tax free 25% plus you personal allowance in the years between stopping work and starting the DB benefits.

WindfallWendy

Question on the tax free 25% if you don't mind ...

If a SIPP value is £100k, then you can take out £25k tax free. Presumably you can then leave the SIPP alone.

So what if, 2 years later, SIPP is now worth £80k... Can you take out another £20k (25%) tax free? Or (and I assume this is the position), can you only take out £1250 tax free, and then anything else being taken out is taxed.

And therefore there is an annual calculation to be done on the 25% .... Or is that just a one-and-done situation? Hope you don't mind me asking this.

MallyGirl

https://forums.moneysavingexpert.com/discussion/comment/81972187#Comment_81972187

if you take the 25% out then the remaining 75% is now termed 'crystallised' and there is no more tax free to be had from it no matter how much it grows. This is a good reason to not crystallise it all at once if you don't need a big lump sum.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81972187#Comment_81972187

You need to understand the concept of uncrystallised and crystallised pots.

A pension pot that has had nothing withdrawn from it is completely uncrystallised. When you request to take out some tax free cash, four times the amount you request is crystallised. A quarter of this goes to you as tax free cash, and the remainder stays in the pension as crystallised funds. Anything withdrawn from these funds is taxable income.

So for example if you have a £100K uncrystallised, and request a withdrawal of £10K tax free cash, then you get the £10K and £30K is then crystallised funds and £60K remains uncrystallised. You can still take 25% tax free cash from the uncrystallised part, even if it grows to more than £60K ( or shrinks).

However if you take the maximum £25K tax free cash from the £100K, then you are left with only Crystallised funds ( £75K) so no more tax free cash can be taken, regardless if the amount grows or not.

tonycable

https://forums.moneysavingexpert.com/discussion/comment/81971618#Comment_81971618

Very good question, which has a lot of variables.

The situation as i see it at the moment is I finish off paying the current APC just after my 52nd birthday (assuming staying in the same employment, i don't change the contract etc).

I would hope to retire, or at least go part time / do a different part time job, within 5 years of this (but by no means set in stone).

As I dread to think what the state pension age will be by that time, and not knowing for certain what savings I have, I would imagine I would start withdrawing it around this time, or at least well before state pension age.

so basically, I would start to withdraw it soon after I stop working, but could also leave it a while. I think looking at a AVC might be the way forward then.