Do I really need to start a SIPP, I can’t see why

[Binlid]

Recently on this forum I asked for advice about getting income from my investments
The information I received was very useful but did not understand the reasons for starting a SIPP
I already have a pension pot (not in a SIPP) with Royal London (Governed Portfolio 4)
My status is - Age 70, small income from rentals but paying tax as over tax threshold
Wife, 68, same status and also paying tax
Say I’ve got 100k in a non-sheltered investment like VLS 80% and no current CGT liability
I transfer £2,880 of it to a SIPP (as well as 20k to an ISA)
At some point in the future, I could withdraw 25% (£720) of it tax free
But I now pay 20% tax (£432) on the other 75% (£2,160) when I drawdown
It would have to grow some to be worth doing and then I'm not sure
I must be missing something
Please advise
Cheers
Binlid

[Lootman]

I am about the same age as you and your wife and I am not tempted to contribute to a SIPP. £2,880 is too fiddly and small an amount to move the needle for me and I do not want the extra tax complications.

Any kind of pension scheme mostly makes sense for someone younger and/or who is working, And personally I value the flexibility of ISAs and taxable accounts more than I value getting 25% of my own money back tax-free.

[swill453]

Say I’ve got 100k in a non-sheltered investment like VLS 80% and no current CGT liability
I transfer £2,880 of it to a SIPP (as well as 20k to an ISA)
At some point in the future, I could withdraw 25% (£720) of it tax free
But I now pay 20% tax (£432) on the other 75% (£2,160) when I drawdown
It would have to grow some to be worth doing and then I'm not sure
I must be missing something

If you put in £2880, it automatically gets made up to £3600 with tax relief. You can then withdraw 25% (£900) tax free. If you also take the taxable remainder (£2700 - 20% = £2160) you now have £3060 in your hands, a gain of £180 on the £2880. You can do this every year until age 75.

Scott.

[genou]

Say I’ve got 100k in a non-sheltered investment like VLS 80% and no current CGT liability
I transfer £2,880 of it to a SIPP (as well as 20k to an ISA)
At some point in the future, I could withdraw 25% (£720) of it tax free
But I now pay 20% tax (£432) on the other 75% (£2,160) when I drawdown
It would have to grow some to be worth doing and then I'm not sure
I must be missing something

If you put in £2880, it automatically gets made up to £3600 with tax relief. You can then withdraw 25% (£900) tax free. If you also take the taxable remainder (£2700 - 20% = £2160) you now have £3060 in your hands, a gain of £180 on the £2880. You can do this every year until age 75.

Scott.

Whilst the numbers are true, I think it would be a struggle to find a broker who will give you a SIPP account that allows this ( cycling up and down 0 -> 3600 -> 0 ) . It 's a dead loss for them.

[swill453]

If you put in £2880, it automatically gets made up to £3600 with tax relief. You can then withdraw 25% (£900) tax free. If you also take the taxable remainder (£2700 - 20% = £2160) you now have £3060 in your hands, a gain of £180 on the £2880. You can do this every year until age 75.

Whilst the numbers are true, I think it would be a struggle to find a broker who will give you a SIPP account that allows this ( cycling up and down 0 -> 3600 -> 0 ) . It 's a dead loss for them.

Possibly. But you could let it build up for a year or two. Even invest it in the meantime if you like.

For me I already have an active SIPP, this just gives a little bonus for a couple of minutes admin per year.

Scott.

[Binlid]

Say I’ve got 100k in a non-sheltered investment like VLS 80% and no current CGT liability
I transfer £2,880 of it to a SIPP (as well as 20k to an ISA)
At some point in the future, I could withdraw 25% (£720) of it tax free
But I now pay 20% tax (£432) on the other 75% (£2,160) when I drawdown
It would have to grow some to be worth doing and then I'm not sure
I must be missing something

If you put in £2880, it automatically gets made up to £3600 with tax relief. You can then withdraw 25% (£900) tax free. If you also take the taxable remainder (£2700 - 20% = £2160) you now have £3060 in your hands, a gain of £180 on the £2880. You can do this every year until age 75.

Scott.

Brilliant ! thanks Scott
I understand now
Cheers
Binlid

[kempiejon]

If you put in £2880, it automatically gets made up to £3600 with tax relief. You can then withdraw 25% (£900) tax free. If you also take the taxable remainder (£2700 - 20% = £2160) you now have £3060 in your hands, a gain of £180 on the £2880. You can do this every year until age 75.

Why pass up this easy £180, in fact I can arrange my income to be tax free for a few more years so an easy £720.

Another thought and probably trivial for an unwaged 70 year old making minimum contributions but isn't the SIPP handily outside of the estate for inheritance, protected in case of bankruptcy and the capital doesn't count for means tested benefits if not in drawdown?

[SebsCat]

This is probably something I should be doing as my only pension is a smallish, but above the PA amount DB one that I'm taking. I generally file a SA return each year because of my holdings in an investment club so not worried about the tax admin side. But whilst £180 for free sounds good, won't much of that be swallowed up in fees? I'm not really a fan of the idea of opening an account, subscribing and then withdrawing & closing the account almost immediately to minimise the cost. What's the cheapest broker offering SIPPs for a small amount?

[kempiejon]

This is probably something I should be doing as my only pension is a smallish, but above the PA amount DB one that I'm taking. I generally file a SA return each year because of my holdings in an investment club so not worried about the tax admin side. But whilst £180 for free sounds good, won't much of that be swallowed up in fees? I'm not really a fan of the idea of opening an account, subscribing and then withdrawing & closing the account almost immediately to minimise the cost. What's the cheapest broker offering SIPPs for a small amount?

You'd probably want a %age based charging structure. These days I think Moneyvator get the hat tip for comparison tables. https://monevator.com/compare-uk-cheape ... e-brokers/ It is regularly updated. Once you have found the cheapest %age double check no other fees, like for crystallising or taking money out.

[SebsCat]

You'd probably want a %age based charging structure. These days I think Moneyvator get the hat tip for comparison tables. https://monevator.com/compare-uk-cheape ... e-brokers/ It is regularly updated. Once you have found the cheapest %age double check no other fees, like for crystallising or taking money out.

Thanks, I've gotten so used to thinking of fees as fixed or capped amounts that I quite overlooked that straight percentage fees are so much cheaper when dealing with smaller amounts! Looks like Vanguard (0.15%, £5.40pa on £3,600) and AJ Bell (0.25%, £9pa) are the main options, neither of them charge for crystallising or withdrawals.

[DeepSporran]

…….

Whilst the numbers are true, I think it would be a struggle to find a broker who will give you a SIPP account that allows this ( cycling up and down 0 -> 3600 -> 0 ) . It 's a dead loss for them.

Not too much of a struggle. Hargreaves Lansdown allow this and if you stay in cash there are no fees at all. You’ll even get interest of at least 3.45% while you are waiting to withdraw the cash.

[kempiejon]

…….

Whilst the numbers are true, I think it would be a struggle to find a broker who will give you a SIPP account that allows this ( cycling up and down 0 -> 3600 -> 0 ) . It 's a dead loss for them.

Not too much of a struggle. Hargreaves Lansdown allow this and if you stay in cash there are no fees at all. You’ll even get interest of at least 3.45% while you are waiting to withdraw the cash.

How could they stop you opening an account if they don't know that's what you're going to do. Once opened they can't stop you withdrawing. Perhaps they wouldn't let you open another the next years but there's plenty of providers. Of course if you already have a SIPP you can add the new money to it each year and do the 25% crystallise and take income.

[genou]

Not too much of a struggle. Hargreaves Lansdown allow this and if you stay in cash there are no fees at all. You’ll even get interest of at least 3.45% while you are waiting to withdraw the cash.

How could they stop you opening an account if they don't know that's what you're going to do. Once opened they can't stop you withdrawing. Perhaps they wouldn't let you open another the next years but there's plenty of providers. Of course if you already have a SIPP you can add the new money to it each year and do the 25% crystallise and take income.

I'm surprised if a provider will permit this. It's ages since I looked at setting up a SIPP, and it may be the strictures I am thinking of were linked to welcome bonuses - but it was basically if you reduce your SIPP to zero we'll close it. My comment was in the context of the OP that there was no existing SIPP, and the suggestion was made to cycle zero/3600 repeatedly as the only SIPP involved.

[DeepSporran]

……,,,

I'm surprised if a provider will permit this. It's ages since I looked at setting up a SIPP, and it may be the strictures I am thinking of were linked to welcome bonuses - but it was basically if you reduce your SIPP to zero we'll close it. My comment was in the context of the OP that there was no existing SIPP, and the suggestion was made to cycle zero/3600 repeatedly as the only SIPP involved.

As I say, Hargreaves Lansdown are the favoured provider for this process. You either leave a small non zero balance to keep the SIPP open, or empty it out and open a new one the next year.

If you have a lot of time and patience there’s a very long thread (136 pages) on MSE which covers loads of the detail.

https://forums.moneysavingexpert.com/discussion/5580163/paying-2880-into-pension-when-retired