Pension vs ISA question

[BlondeEmma]

I decided to semi-retire last year (aged 61) after leaving my previous employer. No plans to work again (for now) and no plans to use my SIPP pension just now as I’m living on my savings. I have some spare cash and unsure on the best options…as further cash contributions into my pension?, cash ISA? or stocks & shares ISA? I’m currently thinking of using my pension in 2/3 years. Any suggestions?

The interest rate is pretty good at the moment, so I'm stuffing as much as possible of my savings into ISAs at the moment. Im not a pension expert and don't have a private pension only company ones, I'm sure someone will be along soon to advise on that.

Pension- always, because of the tax relief, but it will depend on your earnings and contributions for the last 3 years. Your SIPP provider may have a calculator tool?

If not working you can only put about £2800/year into the pension - and no carry forward, because that's still subject to a qualifying earning limit.

I'd do that for the uplift, then any leftover into an ISA (S&s only if you won't using it for 5 years+; otherwise cash).

Are you using your £12.5k personal tax allowance? If not I’d be taking money out of the SIPP, not putting it in, to make the most of your personal allowance. Anything you take out when you’re taking your state pension will be taxed. You could live off your SIPP now and keep the savings for later.

You're right to move anything you don't need out of "cash" - inflation erodes cash where ISAs, SIPPs etc aim to beat inflation and maintain/grow both your money and your future spending power.

So, I agree with a previous poster who said put your full allowance into your SIPP, and then get the rest either into an ISA, or a decent savings account that pays around 5% interest.

This is very good advice

It's impossible to give you a proper steer without knowing your full financial circumstances (ie what's your health/life expectancy, is your SIPP invested in liquid assets, what are the respective charges on your SIPP/ISAs etc) but generally speaking there's a few things you could explore.

If you withdrew £16,760 from your SIPP each tax year as an UFPLS it would all be tax free - that's because 25% is tax free and the rest would sit within your personal allowance. (in reality you'd suffer basic rate tax and have to reclaim it from HMRC but that's easy to do).

Then you could recycle £2880 back into your SIPP. The government will kindly gross that up to £3600. Think of it as £720 of free money. What's not to like there?

Only then should you drain your ISAs if you need more cash to live on.

The reason for this is that when you start getting your state pension at 67, it'll use up pretty much all your £12,570 personal allowance. So make use of your personal allowance now by drawing from your SIPP. Keep as much as you can in your ISA as that will reduce your tax bill when you're 67. Oh and S&S ISAs likely to earn you a better return than Cash ISAs over the medium-long term.

PM me if you want more details.