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  • FIRST POST
    • janesmith
    • By janesmith 9th Mar 18, 11:35 PM
    • 21Posts
    • 6Thanks
    janesmith
    Is It Worth Me Setting Up and Managing a SIPP?
    • #1
    • 9th Mar 18, 11:35 PM
    Is It Worth Me Setting Up and Managing a SIPP? 9th Mar 18 at 11:35 PM
    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.
Page 1
    • Brynsam
    • By Brynsam 9th Mar 18, 11:59 PM
    • 956 Posts
    • 630 Thanks
    Brynsam
    • #2
    • 9th Mar 18, 11:59 PM
    • #2
    • 9th Mar 18, 11:59 PM
    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
    • By janesmith 10th Mar 18, 12:40 AM
    • 21 Posts
    • 6 Thanks
    janesmith
    • #3
    • 10th Mar 18, 12:40 AM
    • #3
    • 10th Mar 18, 12:40 AM
    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
    • By Brynsam 10th Mar 18, 12:46 AM
    • 956 Posts
    • 630 Thanks
    Brynsam
    • #4
    • 10th Mar 18, 12:46 AM
    • #4
    • 10th Mar 18, 12:46 AM
    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
    • By Dazed and confused 10th Mar 18, 10:18 AM
    • 2,569 Posts
    • 1,235 Thanks
    Dazed and confused
    • #5
    • 10th Mar 18, 10:18 AM
    • #5
    • 10th Mar 18, 10:18 AM
    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
    • By FatherAbraham 10th Mar 18, 11:50 AM
    • 765 Posts
    • 588 Thanks
    FatherAbraham
    • #6
    • 10th Mar 18, 11:50 AM
    • #6
    • 10th Mar 18, 11:50 AM
    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?
    Originally posted by janesmith
    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
    Last edited by FatherAbraham; 10-03-2018 at 2:55 PM.
    • janesmith
    • By janesmith 15th Mar 18, 5:09 PM
    • 21 Posts
    • 6 Thanks
    janesmith
    • #7
    • 15th Mar 18, 5:09 PM
    • #7
    • 15th Mar 18, 5:09 PM
    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
    • By xylophone 15th Mar 18, 5:19 PM
    • 25,374 Posts
    • 14,970 Thanks
    xylophone
    • #8
    • 15th Mar 18, 5:19 PM
    • #8
    • 15th Mar 18, 5:19 PM
    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
    • By msallen 15th Mar 18, 6:46 PM
    • 810 Posts
    • 892 Thanks
    msallen
    • #9
    • 15th Mar 18, 6:46 PM
    • #9
    • 15th Mar 18, 6:46 PM
    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
    • By janesmith 18th Mar 18, 7:06 PM
    • 21 Posts
    • 6 Thanks
    janesmith
    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
    • By Alexland 18th Mar 18, 8:58 PM
    • 2,389 Posts
    • 1,791 Thanks
    Alexland
    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.
    Originally posted by janesmith
    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.
    Last edited by Alexland; 18-03-2018 at 9:02 PM.
    • janesmith
    • By janesmith 12th Apr 18, 8:12 PM
    • 21 Posts
    • 6 Thanks
    janesmith
    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.
    Originally posted by Alexland
    That sounds like a clever, semi-automated solution. It's less hassle than doing everything manually when the net benefit I will probably get is only a few hundred quid for a whole year.

    Thanks.

    If anybody has got any other ideas please let me know.
    • Dox
    • By Dox 12th Apr 18, 8:46 PM
    • 531 Posts
    • 313 Thanks
    Dox
    I think you're overestimating the 'hassle' bit, simply because you've never done it before. If you really find it a headache, you could always call it a day after one contribution!
    • Thrugelmir
    • By Thrugelmir 12th Apr 18, 9:06 PM
    • 58,523 Posts
    • 51,884 Thanks
    Thrugelmir
    What investments are you aiming to own inside the pension "wrapper" ?
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • LHW99
    • By LHW99 12th Apr 18, 10:37 PM
    • 1,285 Posts
    • 1,181 Thanks
    LHW99
    If you are classed as a "non-earner" what is your NI situation? May be worth keeping an eye on, as it can be helpful paying some voluntary contributions to make sure you have at least a minimum qualifying amount for state pension.
    • BLB53
    • By BLB53 12th Apr 18, 11:09 PM
    • 1,266 Posts
    • 1,049 Thanks
    BLB53
    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?
    It does not need to be very complex. I have a sipp with AJ Bell Youinvest which is now in flexi drawdown. I personally chose a simple investment - Vanguard Lifestrategy as it was more hassle managing a portfolio of shares but each to their own.

    I pay a platform charge of 0.25%. I make one withdrawal each year and it operates just like a savings account.

    I would never give up on collecting free money from hmrc, 720 x 20 = 14,400.
    If you choose index funds you can never outperform the market.
    If you choose managed funds there's a high probability you will underperform index funds.
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