I've got a SIPP with Vanguard, and I'm old enough that I could draw down a 25% lump sum tax free.
Given that, is there any point putting spare cash into an S&S ISA instead of my SIPP?
The government top up on SIPP contributions makes me think putting it in my pension is the obvious thing to do, but then I wonder whether there's something about keeping pension and other investments separate.
My brother in law keeps an ISA each year so he has tax free access to cash post retirement. He works in 'finance', so knows better than me I presume, he also has a lot more money to invest than me.
That's a good point, I'd forgotten that the other 75% in the SIPP would be taxable.
As above, it 'may' help with tax efficiency. If you are likely to pay tax on your pension then having some money in ISAs means you can get to it without paying tax. However, you then lose the tax rebate you would have received if you had put it in to your pension. A quick spreadsheet/bit of work with a calculator you may be able to work out if it is a marginal gain or an important one
If you are in any danger of having enough pension with your SIPP + OAP that you are paying higher rate tax than cash in the ISA may well make sense.
As the Scottish higher rate band has been frozen for years at £43k there will be many pensioners in Scotland with paying higher rate tax.
So leaving aside the 25% tax free lump sum better to pay cash in an ISA without basic rate tax relief but tax free when spent than basic rate tax relief going into a pension and higher rate 42% tax when spent.
Leaving that argument aside should you need to withdraw a big lump sum for any reason taking it from the pension pot may push you into higher rate tax for one tax year. Not an issue taking a lump sum out an ISA.
So certainly worth having some sort of lump sum in ISAs.
This may be useful. https://ukpersonal.finance/flowchart/
I m maxed out on both as I reckon one or both will disappear, not funded through income just moving cash around. The ISA s a winner as you have access to the whole pot if needed, and no need to keep records of income or sales/purchases.
Remember you don’t need to take all tax free 25% at once, you can do it year by year ( money invested longer is *generally* worth more)
SIPP - tax relief on the way in (but only very small amount if no longer in employment) and taxable on the way out after the 25% tax free allowance. ISA - paid out of your after tax income but totally tax free thereafter (although interest on cash within S&S ISA is going to become taxable which means you have to be comfortable to be fully invested).
For flexibility, I would try and have a bit of both, especially if the SIPP is your dominant savings pot.
I'm not in much danger of paying tax at the higher rate on my pension unfortunately.
It really depends, you can't touch a SIPP or other pension until a certain age, so if you want to stop work early, you need a 'bridge fund' to fund to live off until you are old enough to get you hands on your pensions. S&S ISAS are perfect for this.
Usually the answer is a bit of both S&S ISA and pension contributions, what that bablance is though, depends on a lot of factors.
You're *probably* better off putting it in the pension. But. ISA wins for flexibility, so if you "might" need it sooner, that's a thing.
ISA is taxed before you even invest, pension is taxed when you withdraw, you'll pay less tax on the pension unless your pension annuity is more than your current salary, not the case for most of us I'd wager.*
*I think, but I.A.N.A financial advisor. Etc.