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Prioritising Pension over ISA?

Darka
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Prioritising Pension over ISA?

#117890

Postby Darka » February 13th, 2018, 3:45 pm

Hi,

My wife is 56 this year and will be leaving her SIPP alone until she is 60, when she aims to retire.

At the moment, I focus on topping up her ISA and only put a token amount into the SIPP each month to help with charges, etc.

As she will probably be using UFPLS to access her pension one day, with the aim of getting it all out completely tax free, I'm questioning whether it would be better to throw the ISA allowance into the SIPP instead and get the 20% uplift from the government?

Am I missing something, it looks like a no-brainer to switch all payments into her SIPP, even if the government were to scrap the 25% tax free, so long as we stayed under her personal allowance in retirement, then we could empty it (one payment per year) and pay no tax at all?

regards,
Darka

Alaric
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Re: Prioritising Pension over ISA?

#117893

Postby Alaric » February 13th, 2018, 3:51 pm

Darka wrote:Am I missing something, it looks like a no-brainer to switch all payments into her SIPP, even if the government were to scrap the 25% tax free, so long as we stayed under her personal allowance in retirement, then we could empty it (one payment per year) and pay no tax at all?


The increases in the personal allowances combined with "pension freedoms" have opened up such arbitrage opportunities. Once she starts taking the State Pension, that is taxed, so reducing the opportunities to take SIPP funds out free of tax.

swill453
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Re: Prioritising Pension over ISA?

#117903

Postby swill453 » February 13th, 2018, 4:01 pm

Yes, it depends how much she's likely to end up with in the SIPP. With a few tens of £K it would be entirely possible to take it all out tax free if she stops work years before state pension age.

Right now I'm taking £15,333 via UFPLS and paying no tax whatsoever.

Scott.

Darka
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Re: Prioritising Pension over ISA?

#118304

Postby Darka » February 15th, 2018, 8:07 am

Thanks everyone,

It looks like a good option, so all I need to do now is work out how much she can take out each year without breaching her personal allowance and then how long it will take to deplete the SIPP based on a number of balances, I can then work out how much to contribute to the pension over the next year or two so that we can avoid paying tax on the pension.

regards,
Darka


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