SIPP Query

[bitchstewie]

Just wanted to check/clarify something if anyone's in the know

I'm in works company pension scheme at maximum monthly contributions so around 18% a month total.

I haven't and don't make additional contributions, there is money there to do so but it's not something I've focussed on until recently.

I have just opened a S&S ISA with the intention of not touching it and growing it for 15-20 years by which point I'll be in my 50's.

Could or should I be looking at SIPP v ISA? I've read quite a few SIPP articles and I'm still not at all clear if you can have one alongside an employer pension (whether you should is a separate question).

[Jambo85]

You can have it alongside other pensions but you can only claim tax relief up to the amount of tax you have paid.

If you're a higher rate tax payer in particular, the tax relief makes a SIPP very attractive vs a regular ISA if you're definitely comfortable with having the money inaccessible.

[JulianPH]

If, after your existing pension contributions, you have income in the higher rates tax bracket to save then a SIPP (or more employer pension contributions) would be best for you.

If not then an ISA is great.

It is all down to taxation, ISA's also have the benefit/disadvantage of immediate access, SIPPs lock your money away from you until retirement (or 10 years before retirement age).

Go with increased company contributions if you can persuade your employer to match.

[Heres Johnny]

Jambo85 said:

You can have it alongside other pensions but you can only claim tax relief up to the amount of tax you have paid.

.

Isn't there also an upper limit of 40k including employers contributions which also reduces if you earn above 150k?

[Jambo85]

Sorry I don't know - not a problem I have

[ellroy]

Heres Johnny said:

Isn't there also an upper limit of 40k including employers contributions which also reduces if you earn above 150k?

Yes. This.

[bogie]

ellroy said:

Heres Johnny said:

Isn't there also an upper limit of 40k including employers contributions which also reduces if you earn above 150k?

Yes. This.

the £40k is a not a limit on what you can put into the pension, its a limit to what you get tax relief on.

between £150k and £210k the amount of tax relief reduces by £2 for every £1 over, until you just get tax relief on £10k only no matter what you earn or put into your pension.

[xeny]

bhstewie said:

I haven't and don't make additional contributions, there is money there to do so but it's not something I've focussed on until recently.
.

Are those salary sacrifice contributions? If you can make AVCs without paying NI on them that's really attractive if you're prepared to wait until you turn ~57 to get at it.

[Jockman]

bogie said:

ellroy said:

Heres Johnny said:

Isn't there also an upper limit of 40k including employers contributions which also reduces if you earn above 150k?

Yes. This.

the £40k is a not a limit on what you can put into the pension, its a limit to what you get tax relief on.

between £150k and £210k the amount of tax relief reduces by £2 for every £1 over, until you just get tax relief on £10k only no matter what you earn or put into your pension.

Complicated further by threshold income starting at £110k. Add on a £40k employer contribution and you’ve hit the adjusted income level.

[bitchstewie]

So the basic conundrum right now is I have more spare cash than can go in an ISA, nice problem to have.

I could explore putting more into the company pension as one-off's but it's still a solid but dull scheme by one of the big names with a limited range of options.

So I need to choose between either simply putting away money each month into a general investment account and I can get at it any time I may need to but there's tax/CGT implications, or I could go with a SIPP and get the tax free benefits but I can't touch the money for about 16 years.

GIA seems the sensible option right now as it'll be a few years before CGT would be even vaguely an issue.

Anything else I should be considering?

[sas62]

bhstewie said:

GIA seems the sensible option right now as it'll be a few years before CGT would be even vaguely an issue.

If you can wait 16 years for your money then a SIPP is a no brainer.

You pay in £16k, government adds in £8k - your investment before any stock market movements is £24k. (This assumes you put the £4k in that you claim via your tax return, and assume you have enough earnings to cover it)

You put £16k into GIA then you only have the £16k. You're turning down £8k free money.

You may be paying income tax on the SIPP when you draw it but you can make the most of tax free allowance and lower rate tax so that you've got 40% tax relief on the way in and a combination of zero or 25% on the way out. If you're a higher rate payer even in retirement then his may not be for you.

[bitchstewie]

sas62 said:

If you can wait 16 years for your money then a SIPP is a no brainer.

You pay in £16k, government adds in £8k - your investment before any stock market movements is £24k. (This assumes you put the £4k in that you claim via your tax return, and assume you have enough earnings to cover it)

You put £16k into GIA then you only have the £16k. You're turning down £8k free money.

You may be paying income tax on the SIPP when you draw it but you can make the most of tax free allowance and lower rate tax so that you've got 40% tax relief on the way in and a combination of zero or 25% on the way out. If you're a higher rate payer even in retirement then his may not be for you.

Thank you, so treat me like a spanner on this if you'd be so kind:

Higher rate taxpayer but PAYE so never done a tax return in my life as no need.

Let's say the intention was to put £750/month into a GIA.

Instead let's say I open a SIP and put £500/month into it funded from my normal bank account that my salary goes into.

What balance would I see in the SIPP account and what happens next around the tax return and claiming money back?

Sorry, I'm perhaps being very dumb but I've not found a single clear concise explanation around the process yet and I'm not sure how much of this is automated and how much is dependent on me completing "something" to claim "some money" back.

[sas62]

bhstewie said:

Thank you, so treat me like a spanner on this if you'd be so kind:

Higher rate taxpayer but PAYE so never done a tax return in my life as no need.

Let's say the intention was to put £750/month into a GIA.

Instead let's say I open a SIP and put £500/month into it funded from my normal bank account that my salary goes into.

What balance would I see in the SIPP account and what happens next around the tax return and claiming money back?

Sorry, I'm perhaps being very dumb but I've not found a single clear concise explanation around the process yet and I'm not sure how much of this is automated and how much is dependent on me completing "something" to claim "some money" back.

Lets say you start in April. Also let assume that the SIPP provider is really efficient at its monthly claim to HMRC and normally takes 3 weeks to get your tax relief.

So
April you put in £500. 3 weeks later HMRC credit an extra £125. Your balance is £625.
May you put in £500. 3 weeks later HMRC credit and extra £125. Your balance is £1250.

This continues to March 2019...
March you put in £500. 3 weeks later HMRC credit an extra £125. Your balance is £7500 (of which you paid £6000 and HMRC paid £1500).

The above assume you fund have made 0% - in practice that wont be the case.

Then in your tax return some time around May 2019 you complete that you have paid £7500 gross into your pension and HMRC send you a cheque for £1500. You can either add that to you pension or not.

If you do add the £1500 tax rebate to you pension the HMRC will automatically add another £350

So your balance with one year contributions (again with no fund increases) is £9350.

I hope my maths are correct.

Edited by sas62 on Friday 6th April 17:59

[bitchstewie]

Thank you that's brilliantly helpful

I suspect short term I'll go with the GIA simply because whilst the maths seem a no brainer, I'm not about to rush into locking away a decent sum for the best part of 20 years without giving it some serious consideration, plus I believe I can "bed and ISA" some of the GIA stuff should I have excess in annual ISA's down the line.

Really appreciate the explanation