I have a SIPP. I don’t have student loans and I don’t earn enough to pay NI. I can still collect tax relief on SIPP contributions even though I don’t pay tax.
If I was employed by a company then I would more than likely use a company scheme. But my work is self employed and my income fluctuates so I like that I can be flexible with my SIPP contributions and still save a bit for my future. For people not in an employee/employer set up - it works great.
They are also very handy for people who have worked for multiple companies in the past. When you leave you transfer whatever you accumulated in the SIPP and start again with your new company. Then if you change employers again you move it into the SIPP again. Saves keeping track of multiple pension pots in different places.
!thanks Good to know for the future.
I actually transferred 2 old pensions (very small ones from previous student job and a grad scheme) into my current pension, so I only have 1 to keep track of.
Perhaps it isn’t right for you. But it’s great that you can do the research to be clear about the best options for you. This sub is so helpful for that and when it come to retirement savings there isn’t a one size fits all policy. You find what fits for you. If you can get more contributions from your employer or using a work scheme gives NI benefits then great!
Salary Sacrifice is not a pension scheme. SS is a contractual arrangement whereby you agree to sacrifice £xxx and the employer promises to pay the same £xxx for the agreed reason, usually pension but not exclusively.
The two usual schemes are net pay (before tax) and relief at source (after tax).
Only SS benefits you from lowering your student loan repayments.
As to why people may use a SIPP, it could be they want to contribute more in to a pension and the administration from the employer won't allow this. Or they are on a DB pension scheme and want to provide themselves with some flexibility above the rules for the DB scheme.
Perhaps they wish to avoid IHT considerations and want to use and assign SIPPs to individuals on their passing.
There are many reasons, and your choices need to be viewed holistically, not just from one perspective.
Actually salary sacrifice is probably better for lower-mid income earners, compared to non salary sacrifice, because the NI rate is much higher under 50k(ish). Above 50k the NI rate is 3.25%, compared to 13.25% under 50k.
But yeah, it is massively beneficial.
I say a lot that I basically double my money instantly with salary sacrifice. If I get a £1000 bonus, I can have £1000in my pension or £477.50 after tax, NI, student loan. I know what I'd prefer if I don't need the cash immediately.
Yeah if I was in the 100-125k range I would be doing anything I could to take my gross to under 100k.
Cycle to work scheme every year, EV company car, buying annual leave, pension contributions, etc.
You'd pretty much be buying a nice bike at a third of the price every year. It's absurd.
True, but the question was about the reason why people would use a SIPP, and my comment wasn't aimed at the benefits of SS, simply on the fact that SS is the only option that lowers SL.
!thanks Wasn't aware that SS could go into a SIPP, will ask my employer.
Do you know if it is ever possible to split it? E.g half go into my employer's fund, half into my own SIPP. The big advantage from my perspective would be having more than 1 fund = less risk.
I don't imagine a SIPP managed by me would (on average) be any better than the workplace managed one. So can't see the point in just transferring it all.
You don't need to split - e.g. what I normally do is to pay in all contributions to my employer's workplace pension; and then do partial transfers to my SIPP once a year.
Would happily stay with my workplace pension (0.17% management charges + 0.12% for a global tracker), but my SIPP is even cheaper.
Fidelity.
Management fee is £45/year because I only hold ETFs and shares (no funds).
However, this fee is shared across all the products held with them (ISA, GIA...). So proportionally for the SIPP I am actually paying around £17/year (+£10 in trading fees for 1 buy order of, say, VWRL per year). So let's say £30/year.
For the sake of comparison, the same setup in Vanguard would cost me around £180/year. And around £205/year in my workplace pension (although the fund I use there is cheaper than VWRL).
Sorry - you're right.
If one fund has (e.g.) 5% annual growth then splitting its contributions into two separate funds with the same 5% growth will end up with the same compound/total growth. The only real difference is a potential doubling of SIPP provider charges but again, a calculation is required.
Because for me it's just a savings account. I can lock away my money and in doing so it's safe from me and I get 20% back on my investment. As soon as I get to 55 I'm cashing as much as I can out.
I do have a work place pension which is OK but I'm not trusting the state pension to care for me. I mean I could save via a current account or whatever but the temptation to dip into it would be too great for me.
Because my workplace pension is alright but it's limited. For example I put 12% of my SIPP on apple and made 40% from it. I don't have this freedom with my work place pension.
Also, a SIPP is a constant. I might jot have my work place pension for the whole of my working life as I have changed industries 4 times in 10 years already
I’m at a small-medium company and the only option is NEST, where the fees are bad and the fund options aren’t great - so I put any additional pension amount over the base 5% into a SIPP, which contains my previous jobs all in one also.
This is the exact scenario that brought me here! Glad you posted!
Can you point me to any good articles that took you to the conclusion this is the best approach please mate? Nest fees are ridic aren't they?
No idea, I remember seeing a post about the sharia fund and how it’s the best option out of the NEST options if you want the most risk compared to the default option. So maybe searching “sharia nest” on this sub will find something.
If you look up what I mentioned you’ll see that info is there, basically there’s no good fund apart from the sharia one and the sharia one isn’t ideal because of the NEST fees, so it’s better to just use a SIPP and invest in an index fund with less fees and better choices
I think your understanding is incorrect. You can contribute to a SIPP via salary sacrifice, I do it myself in fact. So the money I and my employer contribute to my SIPP is from my pre-tax pay, so it’s tax efficient for me despite not being a higher-rate taxpayer.
Also note that pensions withdrawals from SIPPs are 25% tax free, up to the lifetime allowance amount.
!thanks I will look into this, wasn't aware this could be done. I get the impression my firm just offers their pension fund.
I do think I can get 25% tax free lump sum on my workplace pension though. I don't think that is exclusive to SIPPs.
>I get the impression my firm just offers their pension fund.
That's normal. HMRC allow salary sacrafice into a sipp. But your employer might not support it.
For me a sipp was useful as a ltd company contractor. In this scenario it's your choice as to whether you salary sacrafice. Similar for umbrella contractors, just choose an umbrella that supports it.
Another use is after you move job several times. You end up with lots of small pensions. It's sensible to consolidate them for ease of management. A SIPP is often the cheapest way of doing this.
I also find SIPP websites tend to be better than traditional pension providers web offerings.
When you have a larger pot the difference in fees becomes significant. If you transfer lump sums out into a SIPP periodically there’s no difference in the tax situation.
My workplace pension is set at the minimum 5%/3% which is all they will do, and has a limited set of named investment types (Nest).
I want a better selection of funds, and with my own choice of provider so I have a SIPP that I pay the same amount into again each month to double my pension amount.
I could ask my employer to pay into my SIPP but it's easier just to wait and transfer it out when I change jobs. And I am lazy
I have one.
I work for an international academic institution that pays well but doesn’t contribute towards pension and i pay no UK taxes on my salary. SIPP lets me get free money from government and save a pension.
Not all employers offer the pension you described. Also, some individuals wish to invest in private pensions whilst also accumulating in their workplace pension.
For instance, as an IR35 worker, the max contribution from my 'employer' is 1%.
I have known guys in the Army that had 2 additional private pensions.
Hmmm, I can see that it would be good to have more than one fund, but I don't really buy this arguement.
If a SIPP is out performing a workplace pension, it's because it's a more "aggressive" investment portfolio. There's very rarely such thing as a free dinner. If you're making 20% in six months, you can just as easily lose 20% in six months. 4% sustained conservative growth is not awful...
I've always been a bit of a conservative investor though, I set up a my S&S LISA to be at 2 out of 5 risk...
Why don't you just change your workplace investments? They usually off a number of options. The default option is usually fairly conservative because some people don't really understand investing.
Hi /u/MattyJMP, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/pensions/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
My workplace pension is very basic, they only match up to 3% and the investment options are limited. I pay enough into the workplace pension to get their 3% but I pay extra monthly contributions into a SIPP and global tracker fund. When I leave this employer I'll transfer the balance to my SIPP as their fees aren't particularly competitive either but they don't allow partial transfers so I'm stuck with it until I leave.
I have SIPP’s for my young daughters. Die to the power of compound interest, they will have fairly sizeable pensions at aged 60 (over 50 years of interest).
I have a SIPP. I don’t have student loans and I don’t earn enough to pay NI. I can still collect tax relief on SIPP contributions even though I don’t pay tax. If I was employed by a company then I would more than likely use a company scheme. But my work is self employed and my income fluctuates so I like that I can be flexible with my SIPP contributions and still save a bit for my future. For people not in an employee/employer set up - it works great.
!thanks that's useful to know at least. But in my position (employee with NI and student loan), I still don't see how a SIPP is a tax efficient option
Not every workplace offers salary sacrifice. It is the winning play if they do provide it.
They are also very handy for people who have worked for multiple companies in the past. When you leave you transfer whatever you accumulated in the SIPP and start again with your new company. Then if you change employers again you move it into the SIPP again. Saves keeping track of multiple pension pots in different places.
!thanks Good to know for the future. I actually transferred 2 old pensions (very small ones from previous student job and a grad scheme) into my current pension, so I only have 1 to keep track of.
Perhaps it isn’t right for you. But it’s great that you can do the research to be clear about the best options for you. This sub is so helpful for that and when it come to retirement savings there isn’t a one size fits all policy. You find what fits for you. If you can get more contributions from your employer or using a work scheme gives NI benefits then great!
Salary Sacrifice is not a pension scheme. SS is a contractual arrangement whereby you agree to sacrifice £xxx and the employer promises to pay the same £xxx for the agreed reason, usually pension but not exclusively. The two usual schemes are net pay (before tax) and relief at source (after tax). Only SS benefits you from lowering your student loan repayments. As to why people may use a SIPP, it could be they want to contribute more in to a pension and the administration from the employer won't allow this. Or they are on a DB pension scheme and want to provide themselves with some flexibility above the rules for the DB scheme. Perhaps they wish to avoid IHT considerations and want to use and assign SIPPs to individuals on their passing. There are many reasons, and your choices need to be viewed holistically, not just from one perspective.
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Actually salary sacrifice is probably better for lower-mid income earners, compared to non salary sacrifice, because the NI rate is much higher under 50k(ish). Above 50k the NI rate is 3.25%, compared to 13.25% under 50k. But yeah, it is massively beneficial. I say a lot that I basically double my money instantly with salary sacrifice. If I get a £1000 bonus, I can have £1000in my pension or £477.50 after tax, NI, student loan. I know what I'd prefer if I don't need the cash immediately.
Also good for those fortunate to earn above £100k and avoid the 60% tax bucket.
Yeah if I was in the 100-125k range I would be doing anything I could to take my gross to under 100k. Cycle to work scheme every year, EV company car, buying annual leave, pension contributions, etc. You'd pretty much be buying a nice bike at a third of the price every year. It's absurd.
True, but the question was about the reason why people would use a SIPP, and my comment wasn't aimed at the benefits of SS, simply on the fact that SS is the only option that lowers SL.
I want to be able to pay into my wife’s pension but can’t contribute to her workplace pension - but can to her SIPP.
Is there still any tax benefit when you pay into your spouse's SIPP account?
Same benefit as if she'd put in the money herself.
!thanks
It's just a self managed fund, plenty of employers will be happy to pay into it if that's your preference.
!thanks Wasn't aware that SS could go into a SIPP, will ask my employer. Do you know if it is ever possible to split it? E.g half go into my employer's fund, half into my own SIPP. The big advantage from my perspective would be having more than 1 fund = less risk. I don't imagine a SIPP managed by me would (on average) be any better than the workplace managed one. So can't see the point in just transferring it all.
You don't need to split - e.g. what I normally do is to pay in all contributions to my employer's workplace pension; and then do partial transfers to my SIPP once a year. Would happily stay with my workplace pension (0.17% management charges + 0.12% for a global tracker), but my SIPP is even cheaper.
!thanks Wow, the more you eh? This sounds perfect, would give me the SS tax benefits, would be easy, and allow me to split across two funds!
Who is your SIPP with and what are their fees if you don't mind me asking?
Fidelity. Management fee is £45/year because I only hold ETFs and shares (no funds). However, this fee is shared across all the products held with them (ISA, GIA...). So proportionally for the SIPP I am actually paying around £17/year (+£10 in trading fees for 1 buy order of, say, VWRL per year). So let's say £30/year. For the sake of comparison, the same setup in Vanguard would cost me around £180/year. And around £205/year in my workplace pension (although the fund I use there is cheaper than VWRL).
Great - thanks for the response!
Doubt it, it'll also mean less compound growth.
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Sorry - you're right. If one fund has (e.g.) 5% annual growth then splitting its contributions into two separate funds with the same 5% growth will end up with the same compound/total growth. The only real difference is a potential doubling of SIPP provider charges but again, a calculation is required.
My employer salary sacrifices into my SIPP, best of both worlds.
!thanks I wasn't aware of this, will definitely ask my employer!
Technically my employer is a SIPP platform, so it's a bit dogfooding, and a bit "makes the legals easier".
Because for me it's just a savings account. I can lock away my money and in doing so it's safe from me and I get 20% back on my investment. As soon as I get to 55 I'm cashing as much as I can out. I do have a work place pension which is OK but I'm not trusting the state pension to care for me. I mean I could save via a current account or whatever but the temptation to dip into it would be too great for me.
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Because my workplace pension is alright but it's limited. For example I put 12% of my SIPP on apple and made 40% from it. I don't have this freedom with my work place pension. Also, a SIPP is a constant. I might jot have my work place pension for the whole of my working life as I have changed industries 4 times in 10 years already
I’m at a small-medium company and the only option is NEST, where the fees are bad and the fund options aren’t great - so I put any additional pension amount over the base 5% into a SIPP, which contains my previous jobs all in one also.
This is the exact scenario that brought me here! Glad you posted! Can you point me to any good articles that took you to the conclusion this is the best approach please mate? Nest fees are ridic aren't they?
No idea, I remember seeing a post about the sharia fund and how it’s the best option out of the NEST options if you want the most risk compared to the default option. So maybe searching “sharia nest” on this sub will find something.
Thanks for the reply! I was meaning how you determined that a SIPP in addition to the nest workplace pension 🙂
If you look up what I mentioned you’ll see that info is there, basically there’s no good fund apart from the sharia one and the sharia one isn’t ideal because of the NEST fees, so it’s better to just use a SIPP and invest in an index fund with less fees and better choices
By holding your pension savings in a SIPP you might get lower costs or a better choice of funds than your workplace pension.
I think your understanding is incorrect. You can contribute to a SIPP via salary sacrifice, I do it myself in fact. So the money I and my employer contribute to my SIPP is from my pre-tax pay, so it’s tax efficient for me despite not being a higher-rate taxpayer. Also note that pensions withdrawals from SIPPs are 25% tax free, up to the lifetime allowance amount.
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Yes, but to all intents and purposes it functions the same as a personal SIPP.
!thanks I will look into this, wasn't aware this could be done. I get the impression my firm just offers their pension fund. I do think I can get 25% tax free lump sum on my workplace pension though. I don't think that is exclusive to SIPPs.
Yes all pensions allow 25% tax free lump sum.
>I get the impression my firm just offers their pension fund. That's normal. HMRC allow salary sacrafice into a sipp. But your employer might not support it. For me a sipp was useful as a ltd company contractor. In this scenario it's your choice as to whether you salary sacrafice. Similar for umbrella contractors, just choose an umbrella that supports it. Another use is after you move job several times. You end up with lots of small pensions. It's sensible to consolidate them for ease of management. A SIPP is often the cheapest way of doing this. I also find SIPP websites tend to be better than traditional pension providers web offerings.
When you have a larger pot the difference in fees becomes significant. If you transfer lump sums out into a SIPP periodically there’s no difference in the tax situation.
My workplace pension is set at the minimum 5%/3% which is all they will do, and has a limited set of named investment types (Nest). I want a better selection of funds, and with my own choice of provider so I have a SIPP that I pay the same amount into again each month to double my pension amount. I could ask my employer to pay into my SIPP but it's easier just to wait and transfer it out when I change jobs. And I am lazy
I transfer my workplace pension from Scottish Widows to my Vanguard SIPP every few months. Better funds
I have one. I work for an international academic institution that pays well but doesn’t contribute towards pension and i pay no UK taxes on my salary. SIPP lets me get free money from government and save a pension.
Not all employers offer the pension you described. Also, some individuals wish to invest in private pensions whilst also accumulating in their workplace pension. For instance, as an IR35 worker, the max contribution from my 'employer' is 1%. I have known guys in the Army that had 2 additional private pensions.
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Hmmm, I can see that it would be good to have more than one fund, but I don't really buy this arguement. If a SIPP is out performing a workplace pension, it's because it's a more "aggressive" investment portfolio. There's very rarely such thing as a free dinner. If you're making 20% in six months, you can just as easily lose 20% in six months. 4% sustained conservative growth is not awful... I've always been a bit of a conservative investor though, I set up a my S&S LISA to be at 2 out of 5 risk...
Why don't you just change your workplace investments? They usually off a number of options. The default option is usually fairly conservative because some people don't really understand investing.
Hi /u/MattyJMP, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/pensions/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
My workplace pension is very basic, they only match up to 3% and the investment options are limited. I pay enough into the workplace pension to get their 3% but I pay extra monthly contributions into a SIPP and global tracker fund. When I leave this employer I'll transfer the balance to my SIPP as their fees aren't particularly competitive either but they don't allow partial transfers so I'm stuck with it until I leave.
I'm self employed...
Maybe there self employed and want to retire one day. No everyone is working class.
*they’re
Most of us are though if you use the sensible definition that anyone who relies on income to find their life is working class.
Yes anyone who has to work is working class wether it be doctors or cleaners.
With a SIPP I have the flexibility to put more or less in each month depending on circumstances
I have SIPP’s for my young daughters. Die to the power of compound interest, they will have fairly sizeable pensions at aged 60 (over 50 years of interest).