Is it worth me starting a SIPP?

[SulkingInTheCatio]

I have a previous nhs pension which is currently worth about 5k a year and am still in the teaching pension which has a current value of 10k a year Think my nhs one can be taken without detriment at 65yo and the teachers one at 67yo.

I also have a previous final salary scheme with a current value of 3k a year which can be taken without detriment at 55yo.

id like to retire at 60yo but am worried about decimating my annual income by going too early. If I stay in teaching my teachers pension would be worth around 20k a year (if I took it at 67yo. So 28k a year but reduced for taking it early. Then state pension on top.

so if I paid into a sipp for the next ten years could it help bridge a gap so maybe I don’t have to claim my other pensions quite as early? I’m not expecting to make enough money in ten years to last 7 years but maybe 2 or 3 could be good?

I could probably put around £100 a month in it for the next year. But in a years time I could increase this to £300 possibly £400 a month.

or should I just put the money in a cash isa?

someone at work reckoned they started a sipp two years ago and that it’s been life changing and will mean they can retire early

Ive been looking at providers and Aviva for example talk about £5 feet for buying/selling. But not sure I can cope with being hands on. I’d rather have a managed fund.

The AJBell ready made pension fee combines the platform fee and fund charge. They are one of Money saving expert top picks.

@TheEasterBunny3 same my DC have sipps

Funnily enough I opened the AJ bell managed pension this week. I'm going to be screwed in retirement due to long term part time work because I've been at home with disabled children. I currently have a stakeholder pension charging 1% fees from an old job, but my predicted income is about £78 a mth from that as it hasn't been paid into since I stopped working full time about 20 yrs ago. I also have a defined benefit one I've paid into for 10 yrs, but as I work part time that wont be loads either and am trying to buy more (need a GP letter, such a faff) and am going to start paying into the AJ bell one every mth. .

I thought all defined contribution pensions get the 25% from the government I saw not just sipps?!

I thought all defined contribution pensions get the 25% from the government I saw not just sipps?!

They do, it's just which method that is used to do so. For a workplace pension it can be salary sacrifice, net pay or relief at source. SIPPs are relief at source.

Rebel Finance School. It's free on YouTube and will explain everything in simple terms. They are like the Martin Lewis of investments. In simple terms ISAs and Sipps are just wrappers. What you hold in them can be funds, trackers, bonds, cash or whatever. The wrapper determines whether you get tax relief putting money in and how it is taxed when you take it, along with the age it can be accessed. You need to avoid being charged fees by financial advisors and institutions who will want to take a cut of your money going in and for every year going forward and even a cut when you take it out. What you are describing is very easy to do yourself after watching the course. Lots of free ways to set it up. Good luck.

Don't forget there is an annual allowance. You will only get the tax relief on 100% of your income, capped at £60K p.a.

Thank you. My wage is under that. 👍🏻

If you are a 40% tax payer you will need to do a tax return to get back the additional tax relief on your SIPP contributions

@wantmorenow it was rebel finance school which got me thinking about it. I admit I haven’t watched all the videos but colleagues have and rave about it. I’m on the fb group.

Sorry to hijack thread, but when you claim the additional tax back, does that money automatically go in your SIPP? Or is it reduced from tax bill so youve got to pay it in directly yourself?

@GentlyGentlyOhDear
https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief
Online claim if you don't do self assessment. I think it just increases your basic rate tax band and so reduces the amount of tax you pay. The amount in your pension stays the same e.g. £800+£200 tax relief at source. You get £200 off your tax bill so that the £1000 in your pension has cost you £600.

Thank you! I am 41 with a couple of part time defined benefit pensions and husband is higher rate tax payer with rubbish private pension so I am heeding OP's advice that she wished she had started at 40 and getting a SIPP for each of us sorted now!!

PM me if you want a referral code for aj bell. Think we’d both get an Amazon voucher. Obviously I have no affiliation to them and do your own research about who’s right for you, etc.

Sometimes cheap/ free advice is not the best advice. I consulted a personally recommended IFA in a similar situation because I don't think I could be sure of coming up with the best package for my retirement with my average financial knowledge.
It was not cheap for the consultation, but the IFA put my assets into funds that are performing really well. I have a good monthly income and a range of other savings and investments. He also did cash flows to show me how I could retire early and how my investments would fund my living costs. He showed me how I could have enough reserves for large unexpected expenses and afford to gift my children money each year. He gave me the confidence I needed to quit and so far, things have worked out just as he predicted and I am enjoying being retired.
I consider his advice to be money well spent, but everyone's circumstances are different and I know some people begrudge paying a fee.

I merged a few small pensions into a SIPP last summer and added £20k cash and it has grown 31% - wish I’d done it earlier !

Definitely watch the videos or read transcripts. It demystified a lot. Realised that for most of us using anything other than a free platform such as T212 or II etc was just throwing money away. I'm nowhere near understanding everything but I have grasped the fundamentals now and can't believe how little I knew about the basics. Been amazing and their message is it's never too late to start making better choices to get in a better financial position. Small changes and decisions can really make a difference.

@wantmorenow i did think about t212 after picking up about it via the fb group but to be honest it seemed a bit more stressful even with the “ready made pies”.

I liked the idea of a more traditional broker type set up.

My understanding is that time and again, it's been proven that you only need to buy one "whole of market" already diversified find with low fees and just ignore it. There are only a few to choose from and the availability depends upon the platform you buy it through. Just like if you went to Aldi you could buy Heinz beans or their own brand, however if you go to Tesco you could buy Branston ones but not not Aldi own.

It will track the general ups and downs of the wider market without specialising in any one sector. It the very definition of a diversified fund do no need to pick and choose anything else. It will go up and down daily due to volatility. Down when Trump announces another tariff and up when he then cancels it again for example.

However over the long term (I think they suggest a minimum of 5 years is a reasonable time scale to commit to). It is almost certainly going to go up above inflationary rates so your money will grow at a faster rate than in a savings account. Therefore you future purchasing power grows more too. The bigger the annual fee and any fees to buy units or sell units, the less your money grows.

If it's in a SIPP then you get a contribution (equivalent to tax paid) to help it grow even more but pay some tax on what you take out later in life) whereas in an ISA you buy it from your taxed income but it's tax free later. The fund you buy is the same though. So you can hold the same fund in 2 different wrappers at the same time and ignore both whilst you let them do their thing.

Finally, they emphasise having cash buffers too so if you need money and markers are down then you'll still be ok.

Do the course as it will be worth it to educate yourself rather than trust financial companies to make decisions for you. They make their money from how they treat yours. Your best interests are in conflict with their business model. Your fees are their income. 🤣

Every pound and penny that goes into a pension of any sort automatically disappears from the taxman until the pension holder starts drawing from a pension at some future date. Some people choose SIPP to make extra contributions on top of their employer's pension. SIPP provides automatically claim 20%. If the person is in the 40% tax bracket, they need to claim the other 20% themselves via a tax assessment which is quite easy to do themselves

just check what the limits are around how much you can put in each year. Don’t exceed how much you can put in based on your circumstances as you will end up with a big tax bill. Don’t ask me how I know!

If your wage is under that, so is your annual allowance. So eg if you earn 40K, and your DB pension contributions are 14K (these are not the same as what is deducted from your pay packet - they are often valued at 16 x your own and employers contribution but you need to check the details of your scheme) - you can only contribute 26K to your SIPP each year and get tax relief. Actually you can back-date for three years but it is worth being aware of the limits although it looks like you will be ok based on your current plan.

Thanks. Looks like the total limit is 60k. I’ll be nowhere near that.

Yea!

The total limit is your annual salary - up to a maximum of 60K. So if you earn 80K, it is 60K. If you earn 20K, it is 20K. The limit includes all pensions and the tax relief. So in my example above, you can only contribute about 19K (with approx 6K tax relief).

If you like the look of AJ Bell, you might consider Dodl.
Its a simpler stripped down investment app, owned and operated by AJ Bell. It's designed for beginner investors who want a straightforward, jargon-free investing experience. It has lower, simplified charges compared to its main platform.

Its investment choices offer a curated, restricted list of investments including AJ Bell’s own multi-asset funds, themed investments, and a selection of popular UK shares and US shares. It also offers ready-made portfolios for a hands -off approach. Very easy to use app, and not overloaded by too many choices.

Fees costs 0.15% per year of your portfolio value, with a minimum charge of £1 per month and zero trading or dealing fees to buy or sell investments, (so is quite a bit cheaper than the AJ Bell main platform).

One caveat - you can't currently* *take regular income or withdrawals from a Dodl SIPP once you reach retirement age. You'll need to transfer your pot to another provider (like the main AJ Bell platform) for free in order to begin drawdown.