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Is SIPP best route?

Discussion in 'Retirement' started by safe_hands, Aug 6, 2019.

  1. safe_hands

    safe_hands New commenter

    I’m 49 and hoping to retire at 60. I will get a small portion of my teaching pension including lump sum at 60, then will have another small pension added to that at 63 from a previous company pension. I’ll then have my full teaching pension together with state pension at 67. On current projections, the amount I’ll receive at 67 is looking like a good enough sum to live off.

    What I’m trying to plan for (a bit late probably, but better late than never) is to have a bit more money between 60 and 67. I'm not averse to doing some part time hours in my 60s, but don’t want to be pressured into having to do lots.

    Until very recently I thought investing was complicated, extremely risky and something I’d need to do a lot of reading about and spend a lot of time monitoring, and I didn’t want to do that. Read an article that changed that perspective and I’ve recently started a stocks and shares ISA after years of saving in relatively low interest easy access and fixed term accounts. My thinking when opening this ISA would be to pay into it for 10 to 15 years to boost retirement funds.

    I always thought that because I am paying into my teaching pension I couldn’t take out another private pension at the same time. The reading I’ve been doing while looking into S&S ISAs has shown me this isn’t the case.

    Now I’m thinking I should be starting a SIPP as even though 75% of it will be taxable on exit, the tax benefits when paying in means it’s better value than a S&S ISA. (I’m a basic rate tax payer.)

    I’ve looked into AVCs before, but heard from retired colleagues their disappointment about amount of return compared to what they paid in and also as they’re taken from salary, it would mean remaining as a teacher for the next 11 years which I probably won’t do.

    Just looking for peoples’ thoughts...does SIPP sound like best route at the moment?
  2. phatsals

    phatsals Established commenter

    I'm all for them, if you are confident you can choose your own funds/ITs or shares, if not you can get an 'off the shelf' portfolio.

    Look carefully at fees and charges, both for setting up and when taking an income. Hargreaves Lansdown charge about .45% pa and have great research, you can choose your own or go for one of their portfolios. Nutmeg provide off the peg portfolios and are very reasonable.

    Have a good look and take your time.
  3. diddydave

    diddydave Occasional commenter

    I dabbled in the stock market but didn't know what I was doing, other than not to put in too much, pretty much lost the lot - so if you know what you are doing and are willing to take the risk it's an option. I went with AVCs and for many years didn't have the bother of having to fill out a tax return - one advantage of paying through your salary. They do have a variety of funds but at the end of the day you are paying someone to manage the fund so it's a toss up between whether or not their 'expertise' is significantly better than yours as to whether or not it's worth it. My AVCs did much better than my own attempts!

    Another investment route I took was to become a landlord, albeit accidentally - we got stuck with a negative equity flat, but that has shown good returns with an annual return of around 4% plus the capital increase in value.

    ISAs - I've not found one yet that beats inflation so any money put into one is less, in real-terms, when you come to take it out. The main attraction of them for me is that they protect your money against government taxes which are subject to change without warning...though that protection is only as good as the next government's promises.

    It may also be worth looking at faster accrual for the TPS, though I recognise that won't help you with your goal of getting more between the ages of 60 and 67 unless you take it early...but do run those figures as well to see what the actual effects are, you may be surprised to find just how old you would have to be for it not to be worth taking it early.
  4. Prim

    Prim Occasional commenter

    I like the idea of a SIPP, although I would prefer one that has no risk as a higher rate tax payer I would be happy with the extra 40% tax relief. Do these funds exist?
  5. phatsals

    phatsals Established commenter

    Even if you don't invest in anything, you still get the tax relief. No interest but no risk either.
  6. Prim

    Prim Occasional commenter

    Any recommendations for a SIPP that does that? Best place to start some research?
  7. phatsals

    phatsals Established commenter

    Try Hargreaves Lansdown or Bestinvest or AJ Bell (I think), there are loads of them out there. It's free to set up a SIPP, when you invest they claim the tax and pay it into your account within a couple of months. It's up to you whether or not you invest in anything afterwards.

    They also pay a tiny bit of interest, about a third of a percent.
    Prim likes this.
  8. phatsals

    phatsals Established commenter

    I'd avoid Bestinvest, they introduced a flat fee about 6 months ago, changing it from the lowest cost to one of the highest.
  9. jonnymarr

    jonnymarr New commenter

    Mrs JM and I have recently started SIPPs with AJBell. We're a similar age to safe_hands.
    You pay in what you want & when you want via bank transfer and then in due course ( monthly ) they add the 20% tax rebate. You are then free to leave it sitting there, as if in a bank account ( although with inflation its value will be eroded a bit every year ) or you can invest it in pretty much anything you like from the ultra cautious to the highly speculative. I'm no expert, but after researching different options ( following some helpful pointers from people on here ) I felt confident enough to take the plunge.
    I just wanted a half-decent, user-friendly platform with relatively low-costs & a range of 'passive' investment options. AJBell, whilst not the very cheapest, seemed to fit the bill for us.
    The tax benefits of a SIPP are the real bonus. Unless you want (or might possibly need, say, in an emergency ) access to your invested cash before you hit 55 ( soon to rise to 57,58 ), then it seems to me like a better option than a S&S ISA.
    Incidentally - we're still up on our relatively adventurous investments, despite Trump/China doing their best at the moment to crash the markets!
    Last edited: Aug 6, 2019
    Prim likes this.
  10. safe_hands

    safe_hands New commenter

    Thanks all for your useful comments. Certainly seems like SIPP is the way to go with the added tax benefits.

    My ISA is a Vanguard LifeStrategy one. I've seen that Vanguard will be entering the pensions market soon, but no confirmed date as yet. I like the idea of the LifeStrategy funds as I can just invest and leave it after choosing my risk tolerance. Do HL or AJ Bell allow the ability to choose these funds as part of a SIPP wrapper? I don't want anything more complicated than that!

    Or I've looked at Nutmeg as an alternative. They seem a bit 'marmite' in peoples' opinions - have read some really positive reviews, but read other comments about high fees and not much performance.
  11. jonnymarr

    jonnymarr New commenter

    AJ Bell have Vanguard LifeStrategy - all the ones from 20% equity up to 100%.
    I'm not on commission - honest! ;)
    I'm sure the others do too.
  12. Prim

    Prim Occasional commenter

    You mention a rise in the age of access from 55 to 57,58 when would we expect this and is this based on NPA? I'd like to access mine at 55 which is 5 years away.
  13. jonnymarr

    jonnymarr New commenter

    The government haven't confirmed it ( or passed the legislation yet, assuming that's actually needed ) - they're too busy with something or other called Brexit, I believe - but it's widely tipped to rise to 57 in 2028 and then keep rising in line with 10yrs under state pension age. The other part that's still unclear is whether it will be a cliff-edge change or phased in gradually. I'll be 55 in 2027, 56 in 2028, so I'm hoping that as long as my SIPP is in drawdown by 2027 then they can't suddenly tell me I'm too young to access it anymore ( !!! )
    One further thought is whether eventually younger teachers will no longer be allowed to take AAB for their TPS pension at 55 or whether they too will have to wait until they are 10yrs or fewer away from the ( rising ) state pension age. Perhaps in the future only very few of them will be able to afford the luxury of retiring that early though?
    Prim likes this.
  14. safe_hands

    safe_hands New commenter

    Thanks jonnymarr (glad you're not Morrissey!). Sounds like you're a few months ahead of me in working all this out.

    I've looked at AJ Bell and they seem to be well rated and relatively low cost. I was a bit confused looking at their fees though - seems like you have to pay £1.50 every time you trade and it includes funds I think. So does this mean I'd be paying £18 a year to deposit money once a month in a SIPP?

    My ideal would be to stick with the Vanguard platform, but having just realised the £600 I've so far put in my stocks and shares ISA would be worth another £150 to me in a SIPP, I just need to get on with it!

    Is it easy to transfer out of AJ Bell to another provider if I wanted to at a later date?

    Also I've seen that it's possible to keep paying into a SIPP until 75 years old. If you take some money out at 60, are you then still able to pay in after that, or is this only if you haven't started to withdraw money?

    Also any thoughts on which Lifestrategy to use for a 10 year + time frame? I've gone with LS60 for ISA and was thinking LS40 for SIPP as definitely want this for age 60 to 67, i.e. 10 years time.

    So much to think about!
  15. phatsals

    phatsals Established commenter

    You won't pay to add cash to a SIPP but with AJBell you would pay for any and all investments. HL and BI don't charge for buying into funds but do charge for Shares or Investment Trusts, HL, about £11 and Bestinvest about £7.50. AJBell will also charge more for these because as they don't earn annual commission from them.

    You need to look carefully at charges for transferring out of a SIPP, some are very low but many are not, they should have a detailed fact sheet on their site. There is always a higher charge if you want to transfer 'in specie', as in funds/shares/ITs rather than cash. You can continue to pay into a SIPP whether or not you withdraw money, even if you aren't working. The limit on that is something like £3000pa

    With the Vanguard funds, you can have a mix of them for both rather than worry about SIPP or ISA, if you invest through a Fund Supermarket that doesn't charge for fund investments, you can drip feed monthly into any, each or all of them free. If there is a £1.50 charge each time you would think about it more carefully, ie over a year at £50 pm = £600 paid in or £600 - £18 = £592 paid in. I would say that if you are going to invest actively, go for a fund supermarket that doesn't charge for funds.

    If you want to get really clever, in the future go for IWeb for your ISA, £25 set up, no annual fee. You pay £5 for each and every investment but can save a lot in the long run. For example, if you have £5k in a particular Vanguard fund you like, buy it for £5 through IWeb, no management fee ever. Fundsupermarkets would charge £22.50 every year to manage it.
  16. jonnymarr

    jonnymarr New commenter

  17. emerald52

    emerald52 Star commenter

    Back in 1992 I was a part time teacher when my husband was made redundant. Luckily the Head was happy to make me full time as my part time salary didn’t cover the mortgage. I made the decision that I would do all I could to be as financially secure as possible. I found that being full time meant I could buy added years to my pension monthly, so I did. I also wanted to have a fall back fund so I started paying £40 a month into an investment trust. Those decisions were some of the best ones I ever made. Drip feeding money in every month smoothed the stock market bumps. I used some of that money to finish off my pension added years when I retired so that I now have a full 40 year teaching pension. My investment trust is still going though I just reinvest dividends now. It is also held as an ISA now. There are very low management charges and I have a wide spread of investments within the trust. Ok so we had holidays in caravans and I made clothes and curtains but I have happy memories of those years.
    Lucy2711, Sundaytrekker and Prim like this.
  18. heldon

    heldon Occasional commenter

    Is it all in one IT or spread over a number?
  19. harpplayer

    harpplayer New commenter

    I don't know if this will help anyone, but I have a well paying international job and do a lot of tutoring to children of extremely rich families and intend to retire at 50! I can dream - who knows if that will happen, but my investment philosophy is to not over think the strategy, spread my portfolio wide and follow the way of the KISS (Keep It Simple Stupid). So,

    * I have a property in the UK, large mortgage but rented out for four years now. Increased overpayments last time and will do so again next year when my current deal ends.
    * Maxed out Premium Bonds allowance.
    * SIPP with low cost provider receives 15% of spare cash each month, then I invest 80% of it in Gilts in blocks of £5000 when there is enough (a Gilt is just a big, well-known company) and 20% in smaller risky companies. Cannot currently access this until 55, but it might get lowered with a bit of luck.
    * 40% goes into a long term (various 1 - 3 years) savings bond periodically, up to £83000 with a protected bank. Currently, I'm buying bonds with the BLME bank every few months.
    * 10% goes into a UK dollar savings account.
    * 10 % goes into a UK Euro savings account.
    * 25% goes into a UK sterling savings account.

    That's it. You cannot in theory open new ISAs if you are abroad, but you can wait until you are between jobs and back in the UK then max out an ISA for that year. The problem with ISAs now though, is their interest rates are pitifully low. I've taken the view not to bother - just use normal savings bonds and accounts from banks - go for the newer ones who are protected by the UK banking scheme. I have enough to think about a second investment property but just waiting til the BREXIT panto is over before deciding. I would advise against using any financial advisors - trust no one! It's not difficult. It's common sense if you KISS. Stay in total 100% control of your own destiny and DO NOT TRUST ANYONE! If you don't fully 100% understand something, don't invest in it.
    Last edited: Aug 9, 2019
    Prim, emerald52 and 60sunnysmile like this.
  20. mustntgrumble

    mustntgrumble New commenter

    I did a lot of work with markets and higher risk instruments over 35 years. The above post by harpplayer is imo pretty much spot on. Classic risk balanced portfolio. (Not fond of property but thats me). Two key points to take away
    1 DO NOT TRUST ANYBODY. All these fund managers. Avc sellers want a chunk out of you.
    2 It is not easy to manage a portfolio.. Stay away unless you really know what youre doing not because you read a Martin Lewis article.

    For the record With ten year horizons I'd bung in gold.. Rather than property.. Not for this forum methinks

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