Is It Worth Me Setting Up and Managing a SIPP?

janesmith · 10 March 2018 at 12:35AM

I have got a large sum invested in companies as shares and receive my income exclusively as dividends.

As I am classified by HMRC as a 'non-earner' (as I don't pay income tax, but tax on my dividend earnings) I understand unfortunately the maximum I can contribute is £2,880pa into a SIPP.

I'm 48 years old now. Is it worth all the hassle (and costs) of setting everything up and managing it every year for the relatively minor tax benefits I'll get for my annual £2,880 contributions?

Advice welcome please.

I always max out my ISA allowance so can't shift the £2,880 there.

Thank you.

Brynsam · 10 March 2018 at 12:59AM

Set up a simple personal pension and there is next to no hassle and you don't need to actively manage it unless you want to.

janesmith · 10 March 2018 at 1:40AM

Thanks.

What do you mean by setting up a simple personal pension please? Are there any tax or other benefits to it?

I've currently got my funds invested into shares.

Brynsam · 10 March 2018 at 1:46AM

Exactly the same tax benefits as a SIPP. 'Simple' just means you don't have to keep taking decisions. More info: https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/top-tips-for-your-pension/choosing-a-pension-yourself

Dazed_and_confused · 10 March 2018 at 11:18AM

I'm 48 years old now. Is it worth all the hassle (and costs) of setting everything up and managing it every year for the relatively minor tax benefits I'll get for my annual £2,880 contributions?

Depending on much dividend income you receive you may also benefit from a reduction in your personal income tax bill. You would have to a serious amount of dividends but you do state in your op that you have a "large sum" invested so not impossible.

Basically if you are paying 7.5% and the 32.5% dividend tax rate as well paying into a SIPP will effectively increase the amount of 7.5% tax you pay in turn reducing the amount of 32.5% tax you would be charged.

If you are only paying a tiny bit of 32.5% tax you may consider this another "relatively minor" benefit but it all adds up.

FatherAbraham · 10 March 2018 at 12:50PM

janesmith wrote: »

As I am classified by HMRC as a 'non-earner' (as I don't pay income tax, but tax on my dividend earnings) I understand unfortunately the maximum I can contribute is £2,880pa into a SIPP.

I'm 48 years old now. Is it worth all the hassle (and costs) of setting everything up and managing it every year for the relatively minor tax benefits I'll get for my annual £2,880 contributions?

When you pay in £2,880 to a personal pension, it'll appear inside the pension grossed up to £3,600, effectively a 20% "tax relief"..

when you draw that money from the pension, 25% of it will be tax free (£900), and the remaining £2,700 will be taxed as income.

Thus, of your income-tax rate is 20% when you draw it, the effective rate over the whole £3,600 will be 15% (three-quarters of 20%, since one quarter was tax free). You will have "made" 5% (less the costs and charges of the pension arrangement).

If your income-tax rate were 20% when you draw it, the effective rate would be 30%, and you will have "lost" 10%.

Warmest regards,
FA

janesmith · 15 March 2018 at 6:09PM

Thanks a lot for the useful advice.

"If your income-tax rate were 20% when you draw it, the effective rate would be 30%, and you will have "lost" 10%."

I presume you mean the following?

"If your income-tax rate were 40% when you draw it, the effective rate would be 30%, and you will have "lost" 10%."

It all seems a lot of palava, managing this every year, for very little benefit (considering my annual £2,880 contributions cap)?

xylophone · 15 March 2018 at 6:19PM

Have you checked out your state pension situation?

https://www.gov.uk/check-state-pension

You could set up a basic stakeholder. set up a DD to take your contributions monthly/annually and consider your options at the time you want to take the benefits - for example, you might choose to transfer to a drawdown arrangement at that time.

https://www.cavendishonline.co.uk/pensions/stakeholder-pensions/

msallen · 15 March 2018 at 7:46PM

If you have no other pension provision then you could probably drawdown all of the pension tax free (spread over your retirement, not all at once, and depending on your specific circumstances) as there is roughly a £3K difference between basic state pension and personal tax allowance.

janesmith · 18 March 2018 at 8:06PM

Everyone is so helpful here. Thank you.

Anybody got any insights into the specific amount of time it takes to do all the steps to add money into a SIPP every year and do all the related adminstration such as reporting it to HMRC, paying the SIPP provider etc.? I'm just trying to work out if it's worth me handling all the headache for just a few hundred pounds benefit per annum.

Alexland · 18 March 2018 at 9:58PM

janesmith wrote: »

Anybody got any insights into the specific amount of time it takes to do all the steps to add money into a SIPP every year and do all the related adminstration such as reporting it to HMRC, paying the SIPP provider etc.? I'm just trying to work out if it's worth me handling all the headache for just a few hundred pounds benefit per annum.

If you setup the Aviva stakeholder via Cavendish suggested above with a regular direct debit of £240 per month then the provider will claim the £60 government contribution automatically and invest £300 per month. The fees would be deducted automatically, there is no cash balance to worry about, and it uses the same MyAviva login details as their car, home or life insurance products.

https://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/aviva/

https://www.aviva.co.uk/stakeholder-pension/

Then you can sit back, watch the direct debits leave your bank account, and login every 3 or 6 months to see how things are ticking over. The next time you need to give it attention is when you retire (or age 75 at the latest) when you would need to decide between taking an annuity for guaranteed income for life (shop around for the best rates) or transferring into a SIPP for income drawdown.

Alex.

Is It Worth Me Setting Up and Managing a SIPP?

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