SIPP - Should I get one??
Discussion
I'm 54 and choose not to work having sold my business. I have various income streams to pay the bills etc. I have a private pension and Stocks & Shares ISA but have been wondering if I should also get a SIPP?
As I understand it with a SIPP whatever I pay in the government will add tax relief to it (much the same as my private pension) but in a SIPP I have more control over what my money is invested in?
Also if I drew some money out of my private pension would that then prohibit me from getting tax relief on what I put in the SIPP ?
Many thanks.
As I understand it with a SIPP whatever I pay in the government will add tax relief to it (much the same as my private pension) but in a SIPP I have more control over what my money is invested in?
Also if I drew some money out of my private pension would that then prohibit me from getting tax relief on what I put in the SIPP ?
Many thanks.
If you have a chunk of time when you will have no income then its a no brainer. I am on a gap of no earning (living off savings) between retiring at 54 and getting some final salary pensions kick in at 60. Wife is the same - she has a several year window of no income.
So anything we put into a SIPP which got grossed up by the Gov, we can withdraw £16,666 per year without paying any tax (inc 25% tax free sum) - assuming no other income. So tax relief on the way in and tax free on the way out.
Problem is if you have no earnings then you are restricted to contributing £3600 gross p.a. so not so much of a benefit. It's not clear whether your income streams class as income for pension contributions purposes.
I'm not sure about your question on whether drawing your pension limits further contributions. I know that once I started drawing down my SIPP I have a £4k pa limit on contributions but not sure on personal pension.
So anything we put into a SIPP which got grossed up by the Gov, we can withdraw £16,666 per year without paying any tax (inc 25% tax free sum) - assuming no other income. So tax relief on the way in and tax free on the way out.
Problem is if you have no earnings then you are restricted to contributing £3600 gross p.a. so not so much of a benefit. It's not clear whether your income streams class as income for pension contributions purposes.
I'm not sure about your question on whether drawing your pension limits further contributions. I know that once I started drawing down my SIPP I have a £4k pa limit on contributions but not sure on personal pension.
It's just a different pension wrapper so surely only up to 100% of taxable earnings, up to £40,000p.a. including tax rebate assuming you haven't already started taking pension income elsewhere. Take out initial 25% tax free then the rest is taxable, not 25% tax free per year. Once you are taking pension income then max of £4000 contribution rather than £40000.
If you don't have an income from earning (interest & rental income don't count) then you are limited to paying in £2880 per year into a SIPP, which is grossed up to £3600. You can decide how it's invested depending on who the SIPP provider is. Some providers (such as IM) don't offer SIPPs, they offer personal pensions but it's difference in name only really, it just means you cn't pick the individual stocks or funds. Personally I'd max out my ISA contributions first as you can withdraw from it tax-free.
What type is your current personal pension? Defined Benefit or Defined Contribution? If it's a DB you can contribute up to £40k even if you are drawing a pension, if it's a DC you are limited to £4k (roughly speaking, there are nuances). Either way you still need to have earned income to equal the pension contribution.
Planning this sort of investment is where Nik at IM can help out - see the IM sticky at the top of the Finance forum.
What type is your current personal pension? Defined Benefit or Defined Contribution? If it's a DB you can contribute up to £40k even if you are drawing a pension, if it's a DC you are limited to £4k (roughly speaking, there are nuances). Either way you still need to have earned income to equal the pension contribution.
Planning this sort of investment is where Nik at IM can help out - see the IM sticky at the top of the Finance forum.
928 said:
Take out initial 25% tax free then the rest is taxable, not 25% tax free per year.
My understanding is you can take 25% of your pot tax free so if you draw down an income each from your pot until you have taken 25% of the total you can claim the 25% back from IR each year.£16,666 pa is the magic number to avoid paying any tax if its your only income and your a 20% tax payer.
A Single persons tax free allowance of £12500 is 75% of £16,666.00 leaving £4166.00 taxable @ 20% so the pension co send you £15883 (after £833.00 deducted for the std 20% tax rate)
You then either pay extra tax if you earn more or claim the difference back from the IR making it tax free.
Happy to be corrected as I'm considering retirement next year @ 62 and have various pensions that I'd like to leave as they are while taking draw down from one pension to fund me for the next 5-6 years.
Mr Pointy said:
If you don't have an income from earning (interest & rental income don't count) then you are limited to paying in £2880 per year into a SIPP, which is grossed up to £3600.
If you have no income from earning, but are a 40% tax payer, does that figure of £2880 still apply?ncbbmw said:
My understanding is you can take 25% of your pot tax free so if you draw down an income each from your pot until you have taken 25% of the total you can claim the 25% back from IR each year.
£16,666 pa is the magic number to avoid paying any tax if its your only income and your a 20% tax payer.
A Single persons tax free allowance of £12500 is 75% of £16,666.00 leaving £4166.00 taxable @ 20% so the pension co send you £15883 (after £833.00 deducted for the std 20% tax rate)
You then either pay extra tax if you earn more or claim the difference back from the IR making it tax free.
Happy to be corrected as I'm considering retirement next year @ 62 and have various pensions that I'd like to leave as they are while taking draw down from one pension to fund me for the next 5-6 years.
I took out the tax free element (£4166) used that for 3 months (leaving the rest invested) then take out £1388 per month for the remaining 9 months.£16,666 pa is the magic number to avoid paying any tax if its your only income and your a 20% tax payer.
A Single persons tax free allowance of £12500 is 75% of £16,666.00 leaving £4166.00 taxable @ 20% so the pension co send you £15883 (after £833.00 deducted for the std 20% tax rate)
You then either pay extra tax if you earn more or claim the difference back from the IR making it tax free.
Happy to be corrected as I'm considering retirement next year @ 62 and have various pensions that I'd like to leave as they are while taking draw down from one pension to fund me for the next 5-6 years.
I was taxed on the first payment but refunded by IM the following month and no tax from then on, easy.
rockin said:
Always makes me chuckle when people are "so well off" they don't need to use the tax breaks.
I'd be looking at SIPP for both Mr and Mrs Stroud unless you've already hit your LTA(s). Can be pleasingly tax efficient, depending on circumstances.
But aren’t I getting exactly the same tax break from my existing private pension? I’m not sure what benefit having a SIPP would have over the private pension ? I'd be looking at SIPP for both Mr and Mrs Stroud unless you've already hit your LTA(s). Can be pleasingly tax efficient, depending on circumstances.
MikeStroud said:
rockin said:
Always makes me chuckle when people are "so well off" they don't need to use the tax breaks.
I'd be looking at SIPP for both Mr and Mrs Stroud unless you've already hit your LTA(s). Can be pleasingly tax efficient, depending on circumstances.
But aren’t I getting exactly the same tax break from my existing private pension? I’m not sure what benefit having a SIPP would have over the private pension?I'd be looking at SIPP for both Mr and Mrs Stroud unless you've already hit your LTA(s). Can be pleasingly tax efficient, depending on circumstances.
One advantage would be that funds in a SIPP are not subject to IHT, unlike those in a ISA. To me it depends on if you are expecting to use these funds yourself or pass them on. If you're going to need them then putting them into an ISA will mean you can withdraw them tax free. If you're going to pass them on when you die then a SIPP might be the better option. If you have enough spare cash pay into both.
MikeStroud said:
rockin said:
Always makes me chuckle when people are "so well off" they don't need to use the tax breaks.
I'd be looking at SIPP for both Mr and Mrs Stroud unless you've already hit your LTA(s). Can be pleasingly tax efficient, depending on circumstances.
But aren’t I getting exactly the same tax break from my existing private pension? I’m not sure what benefit having a SIPP would have over the private pension ? I'd be looking at SIPP for both Mr and Mrs Stroud unless you've already hit your LTA(s). Can be pleasingly tax efficient, depending on circumstances.
MikeStroud said:
But aren’t I getting exactly the same tax break from my existing private pension? I’m not sure what benefit having a SIPP would have over the private pension ?
My apologies, I should have read the second paragraph of your OP more carefully. I had thought your pension was attached in some way to the sold company so no longer available for you to make contributions.Yes, so long as you have a pension plan open for contributions you should be getting exactly the same tax break as a SIPP would offer. I would see no point complicating matters by opening an additional arrangement.
If there's a Mrs Stroud and/or any Stroudlets without pension plans it might be worth considering SIPP for them.
Some great answers here. Just to cement them, there is no difference whatsoever between a private pension and a SIPP when it come to tax treatment.
A SIPP can give you wider investment options though, so if you like doing all the research and monitoring yourself they are great. If you don't, then an index tracker or a managed fund from a company you trust is the other option.
Your tax relief on pension pension is based upon your Net Relevant Earnings in the current tax year. As has been said this excludes any form of investment income, but you are still able to put in £3,600 a year (gross).
Withdrawing your tax free cash doesn't impact on your contribution limit, but as soon as you take any taxable income you are limited to £4k (gross) a year in new contributions.
Just drop me a PM if you would like to chat over this.
A SIPP can give you wider investment options though, so if you like doing all the research and monitoring yourself they are great. If you don't, then an index tracker or a managed fund from a company you trust is the other option.
Your tax relief on pension pension is based upon your Net Relevant Earnings in the current tax year. As has been said this excludes any form of investment income, but you are still able to put in £3,600 a year (gross).
Withdrawing your tax free cash doesn't impact on your contribution limit, but as soon as you take any taxable income you are limited to £4k (gross) a year in new contributions.
Just drop me a PM if you would like to chat over this.
All,
Thanks.
Just to give a bit more info, I have two private pensions. An Aviva one that I am happy with. Plus an old Allied Dunbar AVC that is now Zurich and they've forgotten about me and I've forgotten about them; it's 20 years old, got a decent amount in it but the charges seem high and performance is low imo. Hence looking to move this latter one somewhere better. I could: (1) Leave as is (2) add it to the Aviva pension or (3) put it somewhere different like a SIPP (4) use as cash/bonds/BTL etc.
Of these I think (3) is best for me as I'm already diversified elsewhere and am happy with a bit of risk in my life.
What I've gleaned is that:
1 - I can move my old Zurich pension fund to a SIPP albeit Zurich will take a cut. I've my eye on a H&L SIPP as I already use them forgambling share dealing and their charges seem good.
2 - My income is not "earned" as it's from savings, interest and rent etc. This limits any additional contributions I can make to £3,600 p.a. Someone above said that is £2,880 actual contribution before the government add their 20%.
3 - Each year I may or may not take a UFPLS lump sum from the SIPP. I believe that even when taking UFPLS I can still pay £4k p.a. in?? May have that wrong and not sure why that is different from the £3,600??
4 - I've asked my accountant to tell me how much I can pay in over and above the £3,600 this year as from previous years when I was working I think I'm allowed to carry forward some payments.
If someone could advise me if my points 2 and 3 are correct I'd be most grateful.
@JulianPH - Thanks for your kind offer. I may take you up on it if/when I see what answers I get. Many thanks.
Thanks.
Just to give a bit more info, I have two private pensions. An Aviva one that I am happy with. Plus an old Allied Dunbar AVC that is now Zurich and they've forgotten about me and I've forgotten about them; it's 20 years old, got a decent amount in it but the charges seem high and performance is low imo. Hence looking to move this latter one somewhere better. I could: (1) Leave as is (2) add it to the Aviva pension or (3) put it somewhere different like a SIPP (4) use as cash/bonds/BTL etc.
Of these I think (3) is best for me as I'm already diversified elsewhere and am happy with a bit of risk in my life.
What I've gleaned is that:
1 - I can move my old Zurich pension fund to a SIPP albeit Zurich will take a cut. I've my eye on a H&L SIPP as I already use them for
2 - My income is not "earned" as it's from savings, interest and rent etc. This limits any additional contributions I can make to £3,600 p.a. Someone above said that is £2,880 actual contribution before the government add their 20%.
3 - Each year I may or may not take a UFPLS lump sum from the SIPP. I believe that even when taking UFPLS I can still pay £4k p.a. in?? May have that wrong and not sure why that is different from the £3,600??
4 - I've asked my accountant to tell me how much I can pay in over and above the £3,600 this year as from previous years when I was working I think I'm allowed to carry forward some payments.
If someone could advise me if my points 2 and 3 are correct I'd be most grateful.
@JulianPH - Thanks for your kind offer. I may take you up on it if/when I see what answers I get. Many thanks.
MikeStroud said:
1 - I can move my old Zurich pension fund to a SIPP albeit Zurich will take a cut. I've my eye on a H&L SIPP as I already use them for gambling share dealing and their charges seem good.
I'll leave other to answer points 2 & 3 as they can be more accurate but I can say that Hargreaves Lansdown charges are most definately not "good". You'll be paying a platform charge & fund charge which will probably push the total to above 1.5% & more. I pulled my pension & ISA out of HL & went elsewhere once I worked out how much it was actually costing me. Julian PH has posted in the past on the corrosive effects of charges on overall returns.Book a call with Nik - he can answer all of your questions.
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