Maximising your SIPP

where_are_we

You can maximise your SIPP total value by electing to pay fees by direct debit from an external bank account instead of selling some of your investments each time.

"Paying fees from your bank account via Direct Debit is not considered a pension contribution, so it does not count towards your annual allowance or affect your eligibility for tax relief. By paying fees from your bank account, your pension account balance will be higher compared to paying fees directly from your account balance, since no funds are deducted from your pension investments for fee payments. You can manage your fee payment method under 'My Profile' > 'Account fee settings'"

This was a message from Vanguard regarding my SIPP. As a non earner I had been contributing £2880 grossed up to £3600 into my SIPP each tax year. My annual fees are now well into 3 figures. Every little bit of tax relief helps!

El_Torro

The benefit of paying your SIPP fees from your pension is that money has received tax relief. Paying from outside your SIPP is using money that has been taxed. So it's costing you at least 20% more.

It makes more sense to pay your ISA fees from outside your ISA, especially if you are maxing your £20k contributions every year.

Albermarle

On the other hand, if you pay from the SIPP, you get a ( small ) tax free withdrawal, if the SIPP works like mine anyway.

For my SIPP the fees come from a separate account ( not the SIPP itself). As there is no money in that account, every month the fee is transferred to that account from my crystallised SIPP, with no tax taken. I keep a bit of cash in my SIPP to keep it simple.

NoMore

This was a message from Vanguard regarding my SIPP. As a non earner I had been contributing £2880 grossed up to £3600 into my SIPP each tax year. My annual fees are now well into 3 figures. Every little bit of tax relief helps!

With vanguard the max fee is £375 pa. You may want to consider moving to another provider that has cheaper fixed fees. If your close to or at the max fee for vanguard you will definitely find cheaper options.

Also I agree with the previous posters, much prefer to save the tax and pay fees from within the SIPP, fees need to be paid either way so why pay more than you have to.

mrklaw

also consider platform fees. if you’re in a relatively simple global equity fund a switch to ETFs can save you money as many platforms offer fixed/capped rates vs uncapped or higher caps for OEICS/funds

QrizB

This was a message from Vanguard regarding my SIPP. As a non earner I had been contributing £2880 grossed up to £3600 into my SIPP each tax year. My annual fees are now well into 3 figures. Every little bit of tax relief helps!

As a non-earner you're up against the limit of how much you can pay into your pension, so paying the fees from elsewhere makes sense.

For people who aren't making pension contributions all the way up to their limit, paying from within the pension is "better" as they'll be paying with money that has already received tax relief.

zagfles

https://forums.moneysavingexpert.com/discussion/comment/82128471#Comment_82128471

It usually only makes sense if you're not going to be using all your personal allowance when you start drawing the pension. If you've got any spare ISA allowance it'll almost never make sense.

zagfles

https://forums.moneysavingexpert.com/discussion/6682450/maximising-your-sipp

It's carefully worded. Maximising the SIPP doesn't mean you're better off, in most cases you'll be worse off paying the fees externally.

Triumph13

https://forums.moneysavingexpert.com/discussion/comment/82128823#Comment_82128823

Very carefully indeed, the sneaky wotsits. I wonder how many people will foolishly follow their 'suggestion'? A bad. I'm with Interactive Investor and I ended up having to transfer my ISA away from them before I could persuade them to take the fees from my SIPP. I would have words with them if they suggested I voluntarily now paid with post-tax money instead.

Imagine you have £100 in your SIPP and the fees are £10.

Best case scenario is for a non-taxpayer. In their case both routes work out the same, so it doesn't matter where tax the fees from.

For a 20% taxpayer who still has some of their £268k PCLS allowance the sums are:

Withdraw the £100 and pay fees in cash : £85 withdrawal less £10 fee = £75
Pay fees from SIPP then withdraw the remaining £90: £76.50

£1.50 better off paying from SIPP

For a 40% taxpayer that has already got enough to use their full PCLS allowance, the numbers are starker.

Withdraw the £100 and pay fees in cash : £60 withdrawal less £10 fee = £50
Pay fees from SIPP then withdraw the remaining £90: £54

where_are_we

Thanks everyone - I maximise my ISA contribution every year. I think it is prudent to maximise tax shelters in view of an increase in future tax take by the government. Before the SIPP Inheritance Tax change, which commences in April 2027, my plan was to pass on to my SIPP beneficiaries as much as possible without incurring IT. That is why I paid fees externally. I do not intend to withdraw from my SIPP (it is 100% in equities) as I have other means to fund my retirement. So from April 2027 onwards I shall re-evaluate my Vanguard SIPP possibly changing provider.