56 and touch and go whether i’ll be able to afford to retire at 60. i have a couple of relatively small DB pensions and a SIPP. i also have a small S&S ISA with vanguard or fidelity, i forget which.

just had an email from HL stating….
You can set up a Direct Debit into your HL SIPP from as little as £25 a month. In this example, you pay in £20, and the government adds £5 in the form of basic rate tax relief (currently 20%).

i didnt know this (useless at understanding money). i opened the SIPP by transferring old, stagnant DC pensions from my engineering days and following good advice on here, invested in a spread of markets and just left it.
now knowing that the government would add 20% to anything i put in, im thinking of taking HL up on that and setting up a DD.

is my SIPP the best method of saving regularly into future investments? i assume if i was to save the same amount of money into my ISA then there’d be no top up from government, so is it a no brainer? or might it work out the same anyway when it comes to withdrawing as maybe the SIPP will be taxed then, and the ISA not?

and if i do decide to set up DD into my SIPP, whats the best way of doing this to minimise charges? chuck a monthly amount in which sits doing nothing, and then when its accumulated into a sizeable amount invest it into my spread, so i just pay one charge?
or invest the DD amount immediately each month and pay charges each month?

hope thats not too confusing and you understand what im asking 🙂

Retire and maybe pick a some consulting work

How about not trying to turn every thread into a STW political sycophant rant.

You can set up a Direct Debit into your HL SIPP from as little as £25 a month. In this example, you pay in £20, and the government adds £5 in the form of basic rate tax relief (currently 20%).

ISA is tax free but you invest from your net income (after tax). There are no restrictions on what you do with it and when you take it and any gains are 100% tax free.

SIPP is a pension and you invest from your gross income (before tax), or from your net income (after tax) but you get your tax back (the extra 20% basic rate tax). However, pensions are subject to tax and you can’t touch them till you’re 55. At 55, you can take 25% tax free as a lump sum, the rest will be taxed eg at your marginal rate.

The 25% tax back on a SIPP is worth having as you’ll likely pay less tax as a pensioner than as a saver as you’ll earn less, so you wil get some benefit (unlikely the full 20% though).

so i think youre saying then that on paper theyll both give me the same in the end for the same input, you just pay tax at different times. but that the SIPP would probably end up being the better option to draw from if i dont touch anything until retired, yep?

and if so, then…..

and if i do decide to set up DD into my SIPP, whats the best way of doing this to minimise charges? chuck a monthly amount in which sits doing nothing, and then when its accumulated into a sizeable amount invest it into my spread, so i just pay one charge?
or invest the DD amount immediately each month and pay charges each month?

thanks

so i think youre saying then that on paper theyll both give me the same in the end for the same input, you just pay tax at different times

Not quite. You can “usually” invest your money within both “wrappers” in the same way for example you can buy a fund in your ISA and/or in your SIPP.

Without speaking for Footflaps but if you are earning now at the higher tax rate then pensions are attractive as you can put money in and claim 40% back. Yes when you retire and start to take your pension you will pay tax at your marginal rate but unless your pension is large then you are unlikely to pay tax at the 40% level and probably at the 20% level so you have made a saving.

ISA’s are tax free withdrawing the money but you have paid tax on the way in.

So you just need to calculate what that mean for you.

You can “usually” invest your money within both “wrappers” in the same way for example you can buy a fund in your ISA and/or in your SIPP.

yep, got that.

but if you are earning now at the higher tax rate then pensions are attractive as you can put money in and claim 40% back.

im 20%, so probably as i thought, pretty much the same in/out? but SIPP still slightly better for withdrawing once ive retired yep? i wouldnt touch it whilst working, firstly as i dont need it, and secondly that may then push me up to the 40% rate.
so for a 20% tax payer, i think im understanding that the SIPP will be better to draw from once retired and starting my earning from zero, is that right?

thanks

im 20%, so probably as i thought, pretty much the same in/out? but SIPP still slightly better for withdrawing once ive retired yep?

Not really. If you withdraw from you SIPP it is part of your taxable income so if you say draw out £15k pa then you will pay tax on the bit between your tax free allowance (about £12k) and the £15k.
If you draw £15k out of your ISA then you will pay no tax on any of it.

SIPP is probably better if you are earning at the 40% threshold then in retirement paying tax on what you take at the 20% threshold.

As above I am no expert so happy to be challenged on any of this.

Not really. If you withdraw from you SIPP it is part of your taxable income

yes, but the ISA will have been taxed already as i would have paid into it from net earnings, so is that not pretty much the same then? apologies for not really grasping this.

so if you say draw out £15k pa then you will pay tax on the bit between your tax free allowance (about £12k) and the £15k.

sadly i wont be troubling the taxman with my SIPP withdrawals. my SIPP is only worth around £100,000 at the mo with less than 4 years left to go before starting to ‘draw down’ at 60. so, going by the recommended figure for drawing down (4%?), then id only be taking around £4000 pa.
although saying that, my DB pension will kick in (12,000 pa hopefully) which means something will be taxed at 20% wont it.

this is confusing for me, told you i was rubbish at money 😀

basically, ive worked out that my £12,000 DB pension, plus 4% SIPP withdrawal will give us £16,000 pa. not quite enough to live on for us, so we were thinking about @ivorlott ‘s question previously where he asks about tapered withdrawals from a SIPP due to other pensions kicking in later (another £6000 pa DB pension at 65, state pension at 67, plus being an old codge and not needing so much the older we get)
so we’d considered his suggestion of say 7% first 5 years and then a lot less when second pension kicks in. minefield innit.
im jealous of some of those mahoosive pension pots ^^^ that you lot have acquired 🙂

so…….now that ive put a bit of context and a few figures behind my question, would you say theres most benefit in putting any further DD payments into a SIPP or my ISA?

thanks for sticking with me, id never have made a career as a financial adviser would i 😀

Retired at 60 last year, and loving it. I’ve absolutely no idea how I arrived here living mortgage free in Brighton and having a rental in Bedfordshire.
I say no idea, as I’ve pretty well been a warehouseman all my life. So minimum wage all my life.
I can only think that starting full time work at fifteen helped, and no debt…..I wasn’t ever earning enough to get credit.

Anyway so it’s great. rebuild our new home here over 2020. Got back on my bike March 2021. Beck on the board and in the sea April 2021. Looking forward to dancing again and enjoying a social life here.

yes, but the ISA will have been taxed already as i would have paid into it from net earnings, so is that not pretty much the same then?

Yes thats about the same I think. If you are not getting any other benefits from the SIPP such as the additional 20% tax allowance.

although saying that, my DB pension will kick in (12,000 pa hopefully) which means something will be taxed at 20% wont it.

Yes the tax is on your overall income (same as when working) from whatever sources unless those sources are tax free such as an ISA.

tapered withdrawals from a SIPP due to other pensions kicking in later (another £6000 pa DB pension at 65, state pension at 67, plus being an old codge and not needing so much the older we get)

Yes I am thinking the same way, im 56 and would like to stop at 60 although I may go a bit earlier. With tapering I can finance it for 10 years until my state pension makes a contribution.

would you say theres most benefit in putting any further DD payments into a SIPP or my ISA?

possibly but you need to decide yourself I dont want to mislead I only have a basic understanding.

would you say theres most benefit in putting any further DD payments into a SIPP or my ISA?

You said you have a pension paying £12k a year, so anything you take from your SIPP will be taxed at 20%, which pretty much wipes out the 20% tax you get back when you pay into a SIPP. However, you can take 25% out as a tax free lump sum, so you can effectively get a 20% benefit on 1/4 of your pension (or 5% overall benefit).

So, a SIPP is marginally more tax efficient, but less flexible (have to wait till 55%, more paperwork to take 25% tax free etc).

Retired at 60 last year, and loving it. I’ve absolutely no idea how I arrived here living mortgage free in Brighton and having a rental in Bedfordshire.

Timing

Timing

Those graphs don’t show affordability of the mortgage payments eg as a % of average wage, which would probably be a better indicator as interest rates have dropped a lot since the 80s.

Sadx – you may be able to defer your db pension to boost retirement income. Some schemes allow it, some don’t. I know someone who s deferred his db, he must be early 70s by now, must be pretty sure of his longevity as the pensions going to die with him. Actually he s pretty clued up so maybe it all transfers to his widow.

Those meaningful money podcasts are really good, I m ploughing through them now. Ta whoever tipped them on here.

@surfer ‘s comments

thanks, appreciated.

You said you have a pension paying £12k a year, so anything you take from your SIPP will be taxed at 20%, which pretty much wipes out the 20% tax you get back when you pay into a SIPP. However, you can take 25% out as a tax free lump sum, so you can effectively get a 20% benefit on 1/4 of your pension (or 5% overall benefit).

understood, thanks. without going into too much detail (that i wouldnt understand anyway), i dont think id want to take out 25% straight away, id want to draw down (4-7% at a guess) and make it last. would i still get the same 25% tax free benefit by doing so?

So, a SIPP is marginally more tax efficient, but less flexible (have to wait till 55%, more paperwork to take 25% tax free etc).

i assume you mean ‘age 55’, im 56 now so no problem there 🙂 more paperwork? is it a right faff or still easy enough?

you may be able to defer your db pension to boost retirement income. Some schemes allow it, some don’t.

ah ok, not sure if mine does or doesnt. i think colleagues that have worked out whether its worth staying on or not (fire service) always come to the conclusion that its not and retire when they can. (and no, i joined too late for the decent fire pension unfortunately) 😀
gut feeling tho is as plenty have already said above, lifes too short, retire when you can and dont put it off.

thank you all very much.

Sadx- not so much staying on working, your job is physical so probably not suitable to work more years. What I meant is deferring the start of your pension, some schemes allow it.

My db schemes start at 62, I will get a quote for their deferral to start at 63, obviously I would have lost a years payment but it depends on the uplift in payment.

Biggest indicator for me in above is any known family illnesses, longevity of parents, widows benefits.

ahhh i get you. not sure that i could retire and NOT take my pension tho, unless you have a sneaky method of existing for a year or two on no wedge? 🙂

i guess youre probably alluding to living on wifes wage for a while, but in my case that wouldnt be feasible, she earns next to nowt really.
(EDIT: or theres always the possibility of a part-time job, B&Q, van driver type job etc i spose, but is that retiring?)

thanks. its all interesting information, lots to consider, i appreciate it.

@sadexpunk you don’t have to drawdown your sipp pot evenly – so out of your £100k – you take £25k tax free at the 60 (and then effectively split it over the next 7 years), then you could take ~£11k a year till your state pension (and delayed define benefit pension) kicks in at 67 (might be wrong about the age). This would give you a total of £16k/year, all completely tax free as you’re not meeting the £12.5k threshold in any year. At the end of the stint you’ve nothing left in your SIPP pot, but you have a bigger db pension (potentially).

with this method its also worth pumping more into the SIPP pot as you are £1.5k below the minimum tax threshold each year

one other thing to note – if you can contribute through your employer as salary sacrifice you will also get your contributions pre-employee NICS – this is ~5% at your salary range (I think) so gives a benefit over getting the income then putting it into a SIPP (you get the 20% tax either way, but can’t claim back the 5% NICS)

sorry to add more confusion

oh FFS! 😂

i assume you mean ‘age 55’, im 56 now so no problem there 🙂 more paperwork? is it a right faff or still easy enough?

yep, age 55.

No idea about the paperwork, but I have read that quite often when people try and take the 25% tax free it ends up getting taxed and you have to fill in various forms etc to get the tax back. I’m only 50, so will find out exactly in 5 years….

A basic and probably naive question, but if you stop working before the state pension age, do you have to declare yourself “retired” to anyone, like HMRC or whatever, or are you just “voluntarily unemployed”?

Sorry for NRTS but has anyone mentioned to sadex that the 55 age limit is probably moving?
Sadex, are you less than 49 years old currently?

If so, the age at which you can start getting your pension will probably move just before you get there…

but if you stop working before the state pension age, do you have to declare yourself “retired” to anyone, like HMRC or whatever, or are you just “voluntarily unemployed”?

When I retire the very last thing I’m going to do is tell anyone, least of all my employer. I want to see how long it takes them to work it out that I’ve gone (a few salary payments I’m guessing).

but if you stop working before the state pension age, do you have to declare yourself “retired” to anyone, like HMRC or whatever, or are you just “voluntarily unemployed”?

Nope.

I suspect HMRC will figure it out after a year of no PAYE…

Sadex, are you less than 49 years old currently?

no, im 56 so should be fine.

you don’t have to drawdown your sipp pot evenly – so out of your £100k – you take £25k tax free at the 60 (and then effectively split it over the next 7 years),

so take out 25% tax free and invest it in an ISA say and draw down from that you mean?

This would give you a total of £16k/year, all completely tax free as you’re not meeting the £12.5k threshold in any year.

sorry, dont understand that. how can 16k all be tax free as its actually over the 12.5k threshold?

with this method its also worth pumping more into the SIPP pot as you are £1.5k below the minimum tax threshold each year

sorry, still dont understand how im under a threshold.
with regards to pumping into my SIPP, another consideration which may make more sense than all of this, is that my wife doesnt have a pension, so we’ll be relying on mine.
we just started a SIPP for her which only has a few grand in it and we’ve not even considered it as its just not worth anything.
im now thinking it may make more sense to put regular payments into it (rather than my SIPP or anything else) as she’ll be nowhere near her tax allowance. shes 10 years younger than me tho so wouldnt be touching it until im 65.

The change from 55 to 57 is currently in consultation, but is looking slightly complex.

There’s some discussion on MSE here , but basically anyone 55 between the period when this applies needs to watch out, in particular in transferring pensions.

sorry, dont understand that. how can 16k all be tax free as its actually over the 12.5k threshold?

You take 25% of the pension tax free as a lump sum and stick it in a savings account (for example). Then each year, you take £4k as ‘pension top up’ and spend it. Thus you get an income of £12k pension + £4k top up from savings = £16k all tax free.

I’ve not had much of a coherent approach to pensions, preferring other means to an end, but on the basis that I am approaching 60, I thought I’d start pulling stuff together for a final push.

Ive got three pensions and had in the back of my mind that when I left my lowly role in the Raf Regt back in 1985, I was given a peice of paper saying I had qualified for a £500 pension at retirement age.

So I contacted Vets UK, who handle the Service Pensions and they said that from the age of 60 that £500 is now worth £1700 a year and a £5000 cash lump sum. Obviously, I’m not going to have a celebration party, but its better than a kick up the arse! 🙂

You don’t actually have to take the 25% in one go.

You can have 25% of each drawdown payment as tax free (small % of overall 25% tax free amount) and leave the rest in the fund to grow. Your remaining percentage goes up with the fund.

You take 25% of the pension tax free as a lump sum and stick it in a savings account (for example). Then each year, you take £4k as ‘pension top up’ and spend it. Thus you get an income of £12k pension + £4k top up from savings = £16k all tax free.

ahhh that makes perfect sense, thanks. (and apologies to @5lab for not getting that myself).

You don’t actually have to take the 25% in one go.

You can have 25% of each drawdown payment as tax free (small % of overall 25% tax free amount) and leave the rest in the fund to grow. Your remaining percentage goes up with the fund.

got it, thanks.

You don’t actually have to take the 25% in one go.

You can have 25% of each drawdown payment as tax free (small % of overall 25% tax free amount) and leave the rest in the fund to grow. Your remaining percentage goes up with the fund.

This is the way that most people will probably handle things. Martin Lewis uses a good analogy based on a jam roll representing your pension pot. The jam is the tax free bit and the sponge taxable. When you cut a slice of the jam roll (thick or thin), you get 25% tax free and 75% at marginal tax rate. The remainder of the jam roll will grow or shrink based on your investment approach and then you take another slice at a later date etc, etc.

I suspect HMRC will figure it out after a year of no PAYE…

This appears to work. I retired at the end of October, got my final pay off in November. Yesterday I got an email from HMRC telling me to check my new tax code. They have figured out that my old DB pension is now my only source of income, and they will no longer take such a large proportion in tax.

Love these threads….sadx no what I mean with widows benefits is when you go to the fire station in the sky does the pension die with you, or say half to your wife.

I have met q a few ex police and fire types who are doing other jobs, you have good skills, so pension deferral if it pays and is possible could be an option.

The old rules for deferring the state pension were really generous, now it’s not worth it.

.sadx no what I mean with widows benefits is when you go to the fire station in the sky does the pension die with you, or say half to your wife.

pretty sure its half to the spouse. which is why its always seemed tempting to go for the cash transfer on my old engineering DB pension and then stick it in a SIPP so its all available to her on my death. but, ive read it enough times on here to know that we should never get rid of our DB’s 🙂

with regards to pumping into my SIPP, another consideration which may make more sense than all of this, is that my wife doesnt have a pension, so we’ll be relying on mine.

was just thinking about this, and on further thought, itd mean money that we could have put into my SIPP or an ISA to be available early doors when we may want it more, wouldnt be available until shes 55 (or 57 if the rules are likely to change ^^^). which means id be 65 (or 67) and other pensions would be kicking in there too.
if we want more earlier on, thats probably a bad idea even though the tax implications would be favourable.

I think I’m in the wrong forum. Checked my pension pots the other week and I’ll still be working into my 70s at this rate, although house should be paid off, so who knows.

I try not to think about how much having a child and changing career more than once has stuffed my financial future.

I try not to think about how much having a child and changing career more than once has stuffed my financial future.

+1 although not changed careers, many job moves to places with no pension, or not joining a scheme as I thought I wouldn’t be there for long I’ve missed out on quite a few years of contributions or a few small pots 😕

I’m paying additional pension to 50% of the maximum yearly amount. Am I nuts for looking at some of the Vanguard funds/retirement funds instead of paying even more into my workplace pension?

I try not to think about how much having a child and changing career more than once has stuffed my financial future.

The point was made way early on that many folk (like me) took career options that had a long term benefit at the cost of short(er) term gain – e.g. TJ and his NHS Pension.

My first lad was born when I was 16, the second at 22 plus being a Granddad at 34 for I’ve had loads of financial outlay lol.
It was the rule change to allow transferring out of DB pensions that made the difference to me. Without that I’d have struggled to accumulate such a large DC pension.

Life costs loads of money.
What I would say though is not to lose out on life now to provide for a pension you might never see.
Save, yes, but I wouldn’t sacrifice too much.

My friend died a few weeks ago after contracting Covid and an underlying condition that actually only began during lockdown and was not diagnosed correctly or treated. He was very healthy other than the last few months. We are heartbroken and he leaves 4 children (he was 54)

Another friend died (a couple of years ago now) a couple of weeks after we came back from a skiing trip. He had his own business which he had just sold (he worked 7 days a week for years) and was quite well off. He was 55 and his wife now lives in the fantastic house he built.

These things happen all the time of course but when you get to a certain age and people very close to you start disappearing then it focuses your mind. Nothing wrong with working late into life if you enjoy it but I have a 1 year old grandson (I am 56) so maybe another 2-3 years until retirement for me. So many seem to want to replicate their working salary. I think thats a fools game. I may be happy cutting down my hours but I am quite senior so that may be difficult. It may be better to make a clean break.

Anyway this was just a ramble so please ignore. This thread is really useful.