Best SIPP provider to reduce tax liability after redundancy

[TheGander]

Due to redundancy this is an unusually high tax year for me. I’m interested in opening a SIPP to help reduce tax liability. I’ve never done this before always having paid into the NHS pension. I have a Vanguard ISA and for simplicity‘a sake I’m thinking of getting a Vanguard SIPP, but should I be considering another provider? I’m not going to be interested in buying and selling shares as that’s not my forte, I basically want to buy and forget. Thanks for any advice.

I don't know about vanguard for comparison. I am with aj bell they are low fees and have features which help you choose the funds. Or the government one Nest is actually recommended and may suit you if you don't want choice of funds as its a more off the peg option.

Are you looking to do the investing within the SIPP yourself or have the investments managed for you ( based on your attitude to risk ) ?

money saving exert website recommends 5 companies for the former and 3 I think for the latter.

It will depend on the value invested and the fee structures - there are guides online for best buys

Vanguard promotes itself as being low cost and has a lot of funds to choose from. If you've already got an ISA with them, are you happy with their customer service and fees? As others have said, you can search for fee comparisons with other providers online eg Interactive Investor, AJ Bell, Fidelity, Hargreaves Lansdown.

Some of Vanguard's funds are actively managed eg LifeStrategy where they have options for 100% shares or 80%, 60% etc. But they also have funds which are index trackers if that's your preference.

You know the first £30k redundancy payment is tax-free, right?

Mine is vanguard, my workplace one is Nest, both are doing ok. Remember some redundancy is tax free

Thanks everyone. Yes I remembered the first £30000 is free. I actually used AI ( which I generally avoid due to environmental issues) but it explained things clearly. I’m thinking of putting £30000 in. I don’t want it have to pick shares and worry about performance day to day. Not sure if actively managed is worth it for the performance? I listen a lot to Meaningful Money and Pete Matthew is pretty clear about avoiding actively managed ( if I remember correctly). I didn’t know about Nest, I’ll have a look.

Copy&pasted from money saving expert site regarding managed sipps…

Want it simple and choices made for you? On Martin's ITV show, financial planners Andrew Pye (Just Financial Planning) and Nick Hutchings (rockwealth Reading Ltd) said if you want to keep things as simple as possible, look for providers offering ready-made portfolios. Here you answer a few questions about your goals and attitude to risk, and you’re matched to a portfolio that’s then managed on your behalf. They highlighted:

• AJ Bell Ready-made Pension: offers three options you can choose from: 'cautious', 'pension builder' and 'adventurous'.
• Interactive Investor Managed Portfolios: you answer questions then you’re matched to one of 10 managed portfolios.
• Vanguard Managed Personal Pension (SIPP): offers five risk levels from very cautious to very adventurous.

With the options above, you won’t need to pick individual investments. They're designed to be low-hassle, diversified and professionally managed.

Brilliant @tanstaafl I'm going to do a comparison and work out what the fees would be with the different providers

Avoid Nest as they work out quite expensive. I would recommend AJBell or interactive investor. Vanguard are not particularly cheap for small pots so it depends on how much you intend to contribute.

Halifax SIPP is admin fee free at the moment. You do pay for fund trades unless set up as a regular investment. Passive target retirement date funds could be a simple starting option.

Have you taken advice on the level of contribution from an IFA or accountant? You sound like a high earner in the NHS, you may fall foul of the annual allowance with such a large contribution into a personal pension depending on the level of your NHS pension scheme input. The £30,000 contribution may not be the no brainer you think it is if you end up with an annual allowance charge.

The problem is, the NHS scheme won't tell you input until its too late, but you can get a steer by looking at previous years.

Just a gripe I have with the industry, all these providers calling their personal pension a SIPP when it doesn't offer individual shares, property and DFM portfolios etc. urgh. SIPP has become a byword for pension these days when it used to actually mean something!

Vanguard is perfect if you want to buy and forget. They have a small number of funds and fees are low.

@Everanewbie you are much more clued up than me. I’m not sure what you mean by annual allowance. Is it the tax free nil rate band? I’m not a high earner, I’m a band 7 clinician but 4 months of salary, plus redundancy, plus 3 months of NHS pension when I turn 60 means this is an unusually high earning year which is very unlikely to ever be repeated.

Its to do with how much you put into a pension rather than your personal income tax allowance.

The maximum personal contribution you can achieve tax relief on is 100% of your earnings. You are also subject to the annual pension contribution allowance which is £60,000. This includes all pension input, personal contributiuons to personal pensions and your NHS employer final salary scheme. Any contribution in excess of that is subject to an annual allowance charge.

With a personal contribution to a personal pension (i.e. SIPP/Stakeholder pension etc.) the contribution amount is straightforward - its the gross amount of money you put in. However, your NHS scheme is different, and is based on a notional input amount - how much your pension entitlement has increased by. Here is an example, sorry, its bloody complicated:

https://www.nhsbsa.nhs.uk/sites/default/files/2017-04/Annual%20Allowance%20Example%20calculations%20Factsheet%20v3.0%2010.13%20-%20Copy.pdf

Also, individuals with total income and employer contributions over £260,000 may have a reduced AA, potentially as low as £10,000 - different figures applied in earlier years. This is commonly known as the 'tapered annual allowance'.

So a £30,000 contribution may be the right thing for you, but it may also see you fall foul of the complex annual allowance and tapered annual allowance rule, and your contribution may exceed 100% of your earnings and not achieve tax relief.

So, sorry to derail your thread about selecting a provider for your pension, but your first consideration needs to be what you can contribute to mitigate your tax liability but ensure that you don't exceed the annual allowance and/or 100% of your earnings as this will render the exercise as pointless and may even leave you worse off. Once you've established that, you can start thinking about pension providers and funds etc.

I would caution against the DIY approach for such tax planning, and suggest that with cashflow planning, tax planning and investment risk considerations your retirement and financial wellbeing would be better served by employing a financial adviser (not SJP).

Wow thank you so much @Everanewbie . I printed your post out so I could take it in better. I have booked an appointment with my NHS trust’s pensions adviser next week to go over all this. I must admit I never thought I had enough wealth to employ a financial adviser, but I am considering a one off session with a tax adviser. I’m going to read out the NHS BSA attachment you sent. Thank you again for taking the time to pass on this super valuable information.

No worries. Good luck with everything.

do the rebel finance school online course, it started this week but you can catch up on YouTube - this will tell you everything you need to know. It’s completely free.
I’ve just opened a sipp with vanguard following their advice from last years course.
Vanguard is not the cheapest but is not the most expensive either plus, as I understand it, you only pay one platform fee, it’s not per ‘account’ ie isa or sipp so as you have an isa with them anyway it might make sense to get a sipp with them too.

@TheGander the difficulty with the NHS pension is calculating what you have put in as the superannuation payments you make and your employer have no bearing on your pension input amount which is a maximum of £60k per year. The amount is calculated by how much your pension grows in a year which is based on inflation. It's complex. I understood it when I had my pension explained to me but it's gone out of my brain just now. 🤣

Does this course cover annual allowance calculations in the NHS DB scheme? Does it teach you to calculate whether you will be subject to the tapered annual allowance? What about lump sum allowances? Pension decumulation strategies? Does it teach you holistic goal based cashflow analysis? Capacity for loss? Inheritance tax?

You're suggesting OP do a St. Johns Ambulance first aid course so she can perform heart surgery.

How incredibly rude, the OP was talking about opening a SIPP so I offered them an option of getting advice on that, whether you have an NHS pension or not the rebel finance school would provide help with general knowledge about pensions, SIPPS and savings.

I left Vanguard Sipp because it was too expensive for my funding level, I found the software to be non intuitive and quite clunky and you can only buy Vanguard investment products which, despite Vanguard having a reputation for being low cost , are more expensive than others. I learned low cost Vanguard is actually an American version, the UK Vanguard is a different beast. I moved to interactive investor and saved about £800 a year.

That’s interesting @blueneopre . Do you do trades or just set and forget?

I commented before saying Vanguard is fine. However if you are looking at other providers, I have just moved an old workplace pension (which had high fees) to Freetrade, which is fee-free. You still pay annual fund charges to the fund manager, which are the same regardless of platform. I've just created a 'buy and forget' portfolio by choosing a global tracker fund with low fees. I'm not advising you to do the same but hopefully this might help you with your research.

Vanguard life strategy is passive, not active. It’s a decent set of funds if you’re just starting out, although personally I’d go for the global version as it doesn’t have a home bias. You can hold it on any platform.

OP, I would strongly encourage you to choose something you can set and forget. Trading is high risk especially if you’re just starting out, and you’re basically betting on yourself to outperform professionals.

If you want to explore trading I’d suggest opening a dummy account on e-toro or similar and see how it goes.

No I don't trade, I buy index funds and leave it. Most of my portfolio is in a global index fund (70%), but I also dabble a bit in more risky indexed etfs.