Short Term SIPP just for Tax Relief Benefit

another_day_closer

I would like to invite thoughts on whether it would be beneficial to open a SIPP for a short time as part of a bridging strategy just to benefit from the tax relief available.

I mentioned in an earlier post that I was sitting on too much cash and the intention was to use part of that in the bridging to other pension access (DCS and SP).

In the non-earning years the intention was to only draw £12,570 from DCS through FAD for tax efficiency but a thought came to me that by moving around £40k of cash into a SIPP, that £40K plus the initial tax relief (HRT relief would also be claimed) would then become the drawdown pot for around 4 years (noting UFPLS, TFLS etc)

Final thought, the option is there to simply add funds to existing DCS but would probably want to move to a modern app based pension geared up for FAD for this short-term period.

(…or stick with improving Cash ISA rates which compound to near enough to the initial BRT relief)

leosayer

It's not clear from your post whether you have pensionable income in this tax year eg. work salary. Without this, you can only contribute £3,600 to a pension per year.

Assuming you do then the question becomes whether it's worth doing for the tax relief. This all depends on what income tax rate you will pay when drawing down from your pensions and what your headroom is on your Lump Sum Allowance. How likely are you to be able to take more than £268,275 tax free cash from your pensions?

Nothing about this strategy addresses your concern about sitting on too much cash. How do you intend to invest in this SIPP?

Also, it's not clear why you need a bridging strategy to your DC scheme.

In summary, these are specific questions but none are really answerable without a more holistic picture of your finances and objectives.

dunstonh

I would like to invite thoughts on whether it would be beneficial to open a SIPP for a short time as part of a bridging strategy just to benefit from the tax relief available.

Its worth noting that immediate vesting personal pensions have been around since the 1990s. Even before the non-earner pension allowance was introduced in 2001. Things only exist if they are popular enough and suitable to do so.

(…or stick with improving Cash ISA rates which compound to near enough to the initial BRT relief)

Pension beats ISA in terms of tax efficiency. So, using your annual allowances through to age 75 wherever you can (even if taking money out of the ISA to do so) is a good idea for most people.

another_day_closer

Yes there will be enough pensionable income in this final year of pre-retirement earnings to allow for the proposed contribution and looking ahead I will not be troubling LTA and will be a basic rate tax payer when drawing down DCS.

Bridging strategy to DCS simply meant a plan to use Cash ISA withdrawals plus £12,570 from DCS in the years before SP until I thought about this one-off contribution to a SIPP simply for the tax relief and potentially allowing the DCS to grow in the background for that 3-5 year period.

SIPP would be something like 20-25% equities and 75%-80% cash like given that it will be drawn in the first couple of years.

Simply put I am asking whether I am missing the chance to gain this one-off tax relief uplift, and whether it is worth it versus starting to draw from DCS + Cash ISA as originally planned.

NoMore

Yes it would be advantageous, you would gain at least 6.25% over just saving it in an ISA instead.

You could take out £16760 (12570 + associated 25% tax free) each year tax free from your pension without paying tax if you have no other source of income.

Do you really need to open a SIPP ? Adding more to your current pension may be the easiest option.

dunstonh

Simply put I am asking whether I am missing the chance to gain this one-off tax relief uplift, and whether it is worth it versus starting to draw from DCS + Cash ISA as originally planned.

yes you are. (although you refer to SIPP, it would actually be any pension - workplace, personal, stakeholder or SIPP).

another_day_closer

https://forums.moneysavingexpert.com/discussion/comment/82156325#Comment_82156325

It would be a SIPP (as AJB and IE are calling them) and not linked to employment using one of my already existing S&S ISA platforms. The one that offers best online and drawdown experience hopefully.

another_day_closer

@Nomore

https://forums.moneysavingexpert.com/discussion/comment/82156320#Comment_82156320

I agree that adding it to the current pension would definitely be the easiest option on the way in, the reluctance is that it a very old pension not on a modern platform and I am not sure the withdrawal process will be straightforward. This idea I had was with scheduled annual withdrawals in mind (broadly the £16760 x 3 or less x 4) and putting the DCS in the background for this period. Reduces cash, preserves DCS, gets tax relief uplift and is accessible for the period desired.