Discussion
Recently decided to increase my savings through my isa. Now not sure that’s the best way forward and should I start a sipp. .....?
I’m 59yr old and don’t have a pension ( well I have a small one giving me £145 montlly).
Invested my money in property 20 yrs ago and have a decent standard of living from them.
Should I divert the extra savings away from my stocks and shares isa and start the sipp. I would be looking at approximately £1,200 a month. If the general consensus is yes then I can still invest in the same presume.
I am a 40% tax payer if that makes any difference.
Thanks in advance for any advice
Mark
I’m 59yr old and don’t have a pension ( well I have a small one giving me £145 montlly).
Invested my money in property 20 yrs ago and have a decent standard of living from them.
Should I divert the extra savings away from my stocks and shares isa and start the sipp. I would be looking at approximately £1,200 a month. If the general consensus is yes then I can still invest in the same presume.
I am a 40% tax payer if that makes any difference.
Thanks in advance for any advice
Mark
Being a 40% taxpayer helps..
Into the SIPP it goes (GROSS). The only other thing to consider is whether you think your income will ever drop you onto a lower rate.
As you will end up paying 40% on the way back out otherwise.
... in which case ISA might be the best as its 40% less going in (NET) but no tax on the way out.. ever..
You can of course do both, which is ideal. Max out each one. Thats £60k PA protected.
Id probably do some sort of combo. SIPP for longer term insurance and piggy bank. (You could wind out of property over time to avoid management issues) Bed and SIPP etc.
Really you need to map out your retirement path and optimise around that.
So no clear answer.
Someone will tell you to waste money on an IFA soon. But just DYOR and use the wrappers or combo thereof.
Into the SIPP it goes (GROSS). The only other thing to consider is whether you think your income will ever drop you onto a lower rate.
As you will end up paying 40% on the way back out otherwise.
... in which case ISA might be the best as its 40% less going in (NET) but no tax on the way out.. ever..
You can of course do both, which is ideal. Max out each one. Thats £60k PA protected.
Id probably do some sort of combo. SIPP for longer term insurance and piggy bank. (You could wind out of property over time to avoid management issues) Bed and SIPP etc.
Really you need to map out your retirement path and optimise around that.
So no clear answer.
Someone will tell you to waste money on an IFA soon. But just DYOR and use the wrappers or combo thereof.
That's my dilemma......
At my age is it worth it. I'm happy to just keep contributing into stocks and shares isa.
I should of done it years ago instead I used cash isas and potentially lost a big chunk of interest as opposed to now. I can't complain in fact I'm over the moon as roughly up 13% in 10 months as opposed to 1.5% in the cash isa.
Not sure about winding down the property side as that's where my income comes from maybe when I get my old age pension £165.00 week. 🤢🤢🤢 tongue in cheek.
At my age is it worth it. I'm happy to just keep contributing into stocks and shares isa.
I should of done it years ago instead I used cash isas and potentially lost a big chunk of interest as opposed to now. I can't complain in fact I'm over the moon as roughly up 13% in 10 months as opposed to 1.5% in the cash isa.
Not sure about winding down the property side as that's where my income comes from maybe when I get my old age pension £165.00 week. 🤢🤢🤢 tongue in cheek.
gregs1959 said:
At my age is it worth it.
In a SIPP you get compound tax free returns on the half (actually 40%) of your money that you would otherwise have lost in tax at the start. This can be massively beneficial.As others have already said it's impossible to achieve a definitive answer to your question without modelling your "tax in, tax out" position and that will depend upon your overall financial situation.
Another point to bear in mind is that comrade Corbyn could stop ISA tax benefits in seconds if he gets into power. With a SIPP you would already have pocketed the 40% tax relief up front so its in the bag irrespective of what future tax changes may occur.
gregs1959 said:
At my age is it worth it. I'm happy to just keep contributing into stocks and shares isa.
Depending on what you're aiming to do, once you're over minimum pension age, a pension can behave significantly like an ISA with the benefit you get income tax rebated on the way in, and only have to pay tax on a maximum of 75% of the pension when you withdraw it, less if you've some unused personal allowance when you're retired.Especially if you can arrange things so you get 40% tax rebated on the way in on all your pension payments and pay 20% tax rate on the way out on just 3/4 of the pension value, or possibly less
Small point to note, you say your income is derived from property. If its pure rental income, that isn't going to be relevant earnings for pension contribution purposes so you could find that you are limited on this.
Of course, if the property exposure is wrapped in some form of structure then you should have more scope.
Of course, if the property exposure is wrapped in some form of structure then you should have more scope.
rockin said:
Another point to bear in mind is that comrade Corbyn could stop ISA tax benefits in seconds if he gets into power. With a SIPP you would already have pocketed the 40% tax relief up front so its in the bag irrespective of what future tax changes may occur.
Agreed on that but it wouldn't be hard for the government to raid a pension fund either.Not much you can do faced with a hostile environment but worth bearing in mind given the current landscape.
MWM3 said:
This is not necessarily true is it. All depends on how much he is drawing out and what other income there is. Don't forget you can remove 25% tax free from the pension.
Good point on the 25%I did address your initial comment though
"other thing to consider is whether you think your income will ever drop you onto a lower rate."You say that you are also drawing an income from another pension scheme. If you are taking this as flexible access then this limits your SIPP contribution to £4k a year.
In general, however, as a 40% tax payer both now and in retirement the SIPP is still a more tax effective option over the ISA.
For every £6,000 net contribution in you can make a £7,000 net withdrawal (just shy of 17% of free money). So you have £1,000 of free additional cash compared to putting this money into an ISA.
So assuming the underlying investment and charges are equal (which there is no reason why they shouldn't be) then the SIPP still has the edge over the ISA.
Of course, were you to fall into the 20% tax bracket in retirement then you would be able to make a net withdrawal of £8,500 for every £6,000 net contribution - £2,500 of free money (or just shy of 42% extra).
In general, however, as a 40% tax payer both now and in retirement the SIPP is still a more tax effective option over the ISA.
For every £6,000 net contribution in you can make a £7,000 net withdrawal (just shy of 17% of free money). So you have £1,000 of free additional cash compared to putting this money into an ISA.
So assuming the underlying investment and charges are equal (which there is no reason why they shouldn't be) then the SIPP still has the edge over the ISA.
Of course, were you to fall into the 20% tax bracket in retirement then you would be able to make a net withdrawal of £8,500 for every £6,000 net contribution - £2,500 of free money (or just shy of 42% extra).
“Free Money” alert! That’s one of my pet hates. 
Unless it's an employer contribution (and I’d look at options), or tax arbitrage that has absolutely no doubt whatsoever about the chain to decumulation, I wouldn't ever use that term. For instance, at 75, any untouched pension savings and any drawdown funds over the original amount invested will be tested against a Lifetime Allowance. Any excess is then subject to the lifetime allowance tax charge.
OP - you refer to income from an existing scheme. If it was in capped drawdown before April 2015, you can still check to determine whether you can continue with capped income drawdown even with the introduction of flexi- access. If you remain in capped drawdown you will not be impacted by the reduced Money Purchase Annual Allowance (MPAA) of £4,000 and ordinarily could be able to continue to contribute up to £40,000 per annum to a pension if you wished.
But if you want to switch into flexi-access, you could either draw more than the cap (assuming your pension provider allows this), in which case, the capped income drawdown automatically becomes Flexi-Access. But bear in mind that if you are in Flexi Access, and are still only dipping into your tax free component, the £4000 MPAA still doesn’t apply.
More broadly, I’d suggest that a pension vs isa topic is potentially futile to the point of being damaging anyway. There’s no way that anyone can offer a credible opinion (me included) without knowing all of the facts. Finally, there are other ways to use a tax relief allowance that might be just as appropriate.
Unless it's an employer contribution (and I’d look at options), or tax arbitrage that has absolutely no doubt whatsoever about the chain to decumulation, I wouldn't ever use that term. For instance, at 75, any untouched pension savings and any drawdown funds over the original amount invested will be tested against a Lifetime Allowance. Any excess is then subject to the lifetime allowance tax charge.
OP - you refer to income from an existing scheme. If it was in capped drawdown before April 2015, you can still check to determine whether you can continue with capped income drawdown even with the introduction of flexi- access. If you remain in capped drawdown you will not be impacted by the reduced Money Purchase Annual Allowance (MPAA) of £4,000 and ordinarily could be able to continue to contribute up to £40,000 per annum to a pension if you wished.
But if you want to switch into flexi-access, you could either draw more than the cap (assuming your pension provider allows this), in which case, the capped income drawdown automatically becomes Flexi-Access. But bear in mind that if you are in Flexi Access, and are still only dipping into your tax free component, the £4000 MPAA still doesn’t apply.
More broadly, I’d suggest that a pension vs isa topic is potentially futile to the point of being damaging anyway. There’s no way that anyone can offer a credible opinion (me included) without knowing all of the facts. Finally, there are other ways to use a tax relief allowance that might be just as appropriate.
Smoke and mirrors alert: "....tax arbitrage that has absolutely no doubt whatsoever about the chain to decumulation." 
In a SIPP you can get several decades of compound investment return on the tax relief you receive from the government. This massively valuable benefit is not available in an ISA where there's no income tax relief for contributions. The SIPP tax relief gives a massive head start.
Many people forget the Lifetime Allowance isn't a cap on the value of your pension fund, it's simply the point beyond which any excess payouts may be subject to additional tax. This additional tax is not punitive - it's set at a rate set to recover the typical value of the excess tax relief you have received.
In a SIPP you can get several decades of compound investment return on the tax relief you receive from the government. This massively valuable benefit is not available in an ISA where there's no income tax relief for contributions. The SIPP tax relief gives a massive head start.
Many people forget the Lifetime Allowance isn't a cap on the value of your pension fund, it's simply the point beyond which any excess payouts may be subject to additional tax. This additional tax is not punitive - it's set at a rate set to recover the typical value of the excess tax relief you have received.
Precisely. I don’t think we are disagreeing here.
My point was/is that the ‘free money’ aspect is the smoke and mirrors. I have no disagreement with your description, but it’s not always *all* your’s to keep. By all means, you can benefit from the attachment, but many people have to return (some of) it. I’m acutely aware of the benefits to be had from the compounding up of tax relief. But simplistic statements help no one. If I ever say ‘free money’, shoot me.
Further, an ISA may now be bequeathed to a spouse or civil partner, whereas dying after aged 75 carries tax assessment for a pension. Some may find that consideration of a VCT or EIS is better use of available tax relief.
My point was/is that the ‘free money’ aspect is the smoke and mirrors. I have no disagreement with your description, but it’s not always *all* your’s to keep. By all means, you can benefit from the attachment, but many people have to return (some of) it. I’m acutely aware of the benefits to be had from the compounding up of tax relief. But simplistic statements help no one. If I ever say ‘free money’, shoot me.
Further, an ISA may now be bequeathed to a spouse or civil partner, whereas dying after aged 75 carries tax assessment for a pension. Some may find that consideration of a VCT or EIS is better use of available tax relief.
rockin said:
Smoke and mirrors alert: "....tax arbitrage that has absolutely no doubt whatsoever about the chain to decumulation." scratchchin
Agreed!!! 
Ginge R said:
“Free Money” alert! That’s one of my pet hates.
So please expand... What is not 'free' about getting £1,000 or £2,500 of extra cash back from a £6,000 pension contribution that you would not receive from an ISA contribution?Ginge R said:
More broadly, I’d suggest that a pension vs isa topic is potentially futile to the point of being damaging anyway. There’s no way that anyone can offer a credible opinion (me included) without knowing all of the facts.
I think it is anything but futile and cannot see how you consider it to be damaging."There is no way that anyone can offer a credible opinion" - Well I can. A pension is always a more tax efficient vehicle providing you do not pay a higher rate of tax during draw down than you did when making contributions.
Ginge R said:
Precisely. I don’t think we are disagreeing here.
My point was/is that the ‘free money’ aspect is the smoke and mirrors. I have no disagreement with your description, but it’s not always *all* your’s to keep. By all means, you can benefit from the attachment, but many people have to return (some of) it. I’m acutely aware of the benefits to be had from the compounding up of tax relief. But simplistic statements help no one. If I ever say ‘free money’, shoot me.
Further, an ISA may now be bequeathed to a spouse or civil partner, whereas dying after aged 75 carries tax assessment for a pension. Some may find that consideration of a VCT or EIS is better use of available tax relief.
I think the whole point was that rockin was disagreeing with you (I don't want to put words into his mouth though)!My point was/is that the ‘free money’ aspect is the smoke and mirrors. I have no disagreement with your description, but it’s not always *all* your’s to keep. By all means, you can benefit from the attachment, but many people have to return (some of) it. I’m acutely aware of the benefits to be had from the compounding up of tax relief. But simplistic statements help no one. If I ever say ‘free money’, shoot me.
Further, an ISA may now be bequeathed to a spouse or civil partner, whereas dying after aged 75 carries tax assessment for a pension. Some may find that consideration of a VCT or EIS is better use of available tax relief.
Wrong again Al. A pension can be left to a spouse or even children at the same taxation rate as for the original member/beneficiary (their marginal tax rate). ISA's are always subject to IHT when passing on to children.
If the original member dies before 75 then the proceeds of the pension can also be taken tax free.
If I could piggyback a quick question into this please? Apologies OP
I'm looking at increasing my investments, currently do £200 into Parmenion Fiver a Day as some into a HTB ISA and various savings accounts. Haven't opened an ISA this year and would ideally like a 'manage it for me' approach (similar to Fiver a Day). I'm in it for the long haul.
Should I just increase my contributions into FiverADay or open up a second SS ISA and start sticking a couple of hundred into it? Ideally I'd like to draw an income from it in 25 - 30 years. If the answer is open a second SS ISA - which one gets good recommendations?
I'm looking at increasing my investments, currently do £200 into Parmenion Fiver a Day as some into a HTB ISA and various savings accounts. Haven't opened an ISA this year and would ideally like a 'manage it for me' approach (similar to Fiver a Day). I'm in it for the long haul.
Should I just increase my contributions into FiverADay or open up a second SS ISA and start sticking a couple of hundred into it? Ideally I'd like to draw an income from it in 25 - 30 years. If the answer is open a second SS ISA - which one gets good recommendations?
JulianPH said:
So please expand... What is not 'free' about getting £1,000 or £2,500 of extra cash back from a £6,000 pension contribution that you would not receive from an ISA contribution?
It’s a crass, grossly misleading over simplification. JulianPH said:
I think it is anything but futile and cannot see how you consider it to be damaging. "There is no way that anyone can offer a credible opinion" - Well I can. A pension is always a more tax efficient vehicle providing you do not pay a higher rate of tax during draw down than you did when making contributions.
My point was more about what was *not* considered. If you have a large family, a debate entitled ‘what’s best, a Lamborghini or Ferrari?’ may elicit a response, but it won’t always be the best response. Answer - a people carrier. Similarly, an investment into an on or offshore bond, a VCT, and EIS etc.. these *might* be better use of consideration for your wealth and/or tax reliefs. I just wouldn’t get fixated as you do. Sure, you could argue that the topic was about pensions or an isa, but when you said; “A pension is always a more tax efficient vehicle providing you do not pay a higher rate of tax during draw down than you did when making contributions“, that’s when I think you stepped over the line. ‘Always’.. really?
JulianPH said:
Wrong again Al. A pension can be left to a spouse or even children at the same taxation rate as for the original member/beneficiary (their marginal tax rate). ISA's are always subject to IHT when passing on to children.
Therefore, the money is recovered. Hence my statement about gross and misleadingly over simplistic sales-type statements like ‘free money’. There are many caveats. Similarly, FCA boss Andrew Bailey said the other day: "There is no such thing as free banking". And he was/is right. You carry on using the phrase by all means if you feel you need to. It’s not something I agree with, that’s all. Taita said:
If I could piggyback a quick question into this please? Apologies OP
I'm looking at increasing my investments, currently do £200 into Parmenion Fiver a Day as some into a HTB ISA and various savings accounts. Haven't opened an ISA this year and would ideally like a 'manage it for me' approach (similar to Fiver a Day). I'm in it for the long haul.
Should I just increase my contributions into FiverADay or open up a second SS ISA and start sticking a couple of hundred into it? Ideally I'd like to draw an income from it in 25 - 30 years. If the answer is open a second SS ISA - which one gets good recommendations?
Hi Taita, if you want the money managed for you stick with Parmenion/Fiver a Day. It is a very good and well priced service.I'm looking at increasing my investments, currently do £200 into Parmenion Fiver a Day as some into a HTB ISA and various savings accounts. Haven't opened an ISA this year and would ideally like a 'manage it for me' approach (similar to Fiver a Day). I'm in it for the long haul.
Should I just increase my contributions into FiverADay or open up a second SS ISA and start sticking a couple of hundred into it? Ideally I'd like to draw an income from it in 25 - 30 years. If the answer is open a second SS ISA - which one gets good recommendations?
Please ignore Al and I arguing, we do it all the time (here on PH and on the phone)! It is healthy banter and not at all malicious!
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