When to stop adding to a SIPP

[czarcasm]

I have about £300k in a SIPP invested in various equity funds. Aged 40 and on additional rate income tax since I switched to umbrella from Ltd due to IR35.
As much as I'd like to reduce my income tax now, I'm thinking it no longer make sense to continue adding to my SIPP via salary sacrifice as it's likely that the growth of this pot will exceed the lifetime allowance over the next 20 years. Also factor in uncertainty over future pension changes. Maybe more efficient to take that income tax hit now and invest the cash similarly.

Any thoughts?

[northernladuk]

There isn't an answer we can give you. Everyone invests to their own needs and outcomes. We all have different risk levels and attitude to savings so there is no right answer and even someone thinks they've got one we've not idea what's happening in the next 10, 20 years.

If you want to change your current savings strategy I think you need to look at everything. House, income, pension and whatever else you have. Then have a think about what you want when you are 50+. Looking to retire early, prop the kids up and the whole nine yard and then from that think about what you want to do. I really don't think deciding whether to stop paying in to the pension is the question or the answer.

You might want to live life because you don't intend to retire, you might want to finish at 50, you intend to give the kids tons of cash for houses etc. All will affect the answer.

But all that said.. I'd say 300k isn't nearly enough in a pension for me, but I do have a property or two which is more flexible than the pension etc. I'd still be wanting to pump in to the pension in your situation personally.

[ladymuck]

Maybe worth having a chat with an IFA? They can look at your whole situation and give you some ideas.

I can recommend the one I use and they'll give you an initial chat for free and then charge for advice going forward if you decide to use them.

[NowPermOutsideUK]

Maybe worth having a chat with an IFA? They can look at your whole situation and give you some ideas.

I can recommend the one I use and they'll give you an initial chat for free and then charge for advice going forward if you decide to use them.

Do you find IFAs actually useful in structuring tax affairs ir do they simply try and sell you active fund equitity investments? i ve tried one before and they were trying to sell me equity investments rather than tax optimsation stuff

[eek]

Do you find IFAs actually useful in structuring tax affairs ir do they simply try and sell you active fund equitity investments? i ve tried one before and they were trying to sell me equity investments rather than tax optimsation stuff

The only person talking about tax is you - who seems to be awfully obsessed by it for reasons I just don't get.

The OPs question is one of the best place to direct money for long term investment which is an the job of an IFA.

[czarcasm]

There isn't an answer we can give you. Everyone invests to their own needs and outcomes. We all have different risk levels and attitude to savings so there is no right answer and even someone thinks they've got one we've not idea what's happening in the next 10, 20 years.

If you want to change your current savings strategy I think you need to look at everything. House, income, pension and whatever else you have. Then have a think about what you want when you are 50+. Looking to retire early, prop the kids up and the whole nine yard and then from that think about what you want to do. I really don't think deciding whether to stop paying in to the pension is the question or the answer.

You might want to live life because you don't intend to retire, you might want to finish at 50, you intend to give the kids tons of cash for houses etc. All will affect the answer.

But all that said.. I'd say 300k isn't nearly enough in a pension for me, but I do have a property or two which is more flexible than the pension etc. I'd still be wanting to pump in to the pension in your situation personally.

I'm not short on other savings and investments for my retirement. I only invest in the SIPP for tax efficiency. And if I don't pay further into the SIPP, then it just means more of my taxed income will be invested in a similar manner outside a SIPP.

A pot that is £300k today is likely to be worth a lot more in 20 years so I'm thinking there's little point in pumping up that number further so that I end up getting a large lifetime allowance charge when I can finally take it. And who knows if there'll be a pension raid before that even happens.

[Lance]

I have about £300k in a SIPP invested in various equity funds. Aged 40 and on additional rate income tax since I switched to umbrella from Ltd due to IR35.
As much as I'd like to reduce my income tax now, I'm thinking it no longer make sense to continue adding to my SIPP via salary sacrifice as it's likely that the growth of this pot will exceed the lifetime allowance over the next 20 years. Also factor in uncertainty over future pension changes. Maybe more efficient to take that income tax hit now and invest the cash similarly.

Any thoughts?

£300k to over £1m in 20 years is bloody optimistic.
In that timespan I'd be more worried about rule changes to the £1m limit.....


Anyway, you can take 25% of it tax free in 15 years so that helps.
But you have a good point. You might not live the 15 years until you can start to draw down, so no point putting everything in there.
At 40 £300k is a good pot. If I was in you shows though I'd continue to add but maybe not so much.
If you had taken the £300k as cash you'd have paid c. £90k (assumed 30% because I don't know how long you've been saving) so could have £210k to spunk on ferraris, prostitutes and cocaine.

The better question is what do you want to do in life? Cos money is only a means to an end, not the end itself.

[ladymuck]

Do you find IFAs actually useful in structuring tax affairs ir do they simply try and sell you active fund equitity investments? i ve tried one before and they were trying to sell me equity investments rather than tax optimsation stuff

Depends on the questions you ask them, I guess.

Mine discussed with me whether I should get life insurance (no), income replacement insurance (yes), private health cover (no), then consolidated all the crappy pots of pensions I had into one plan so I knew where everything was (no other advisor I'd previously spoken to was willing to do that). When I want to make lump sum payments they make sure I'm doing that effectively. I get an annual review or on demand if I have a significant change of circumstances.

This IFA works with a lot of contractors so they know the things that a contractor is going to be interested in.

Oh and they also talked to my accountant to explain why their invoice for advising on the income replacement insurance was an allowable expense, even though the monthly premiums have to be paid by me so as not to incur a BIK charge.

[sludgesurfer]

£300k to £1million in 20 years assumes around 6% annual growth. Quite achievable. The only (albeit pretty old) information I've managed to find previously when I was looking at this was here:

https://www.ig.com/uk/investments/ne...ou-stop--40273

I don't think it makes sense to stop your contributions at this point and the tables above seem to back this up. £40k straight off the top line is a huge win, particulary when/if the lifetime allowance is revised upwards. I expect this to happen following the current moratorium. Even with the ludicrous undervaluation of DB pensions at 20x, too many civil servants, politicians and tory voters will start making noise if they don't. Note that for 21/22 a DB pension of more that around £53,500 would incur a charge. Cap the LTA for more than a few years particularly as inflation takes hold and watch these guys squeal.

For what it's worth, I'm the same age with more than double the amount in pensions and I continue to sock £40k into a SIPP each year.

Note that contrary to the response below, the 25% tax free lump sum is not taken out before any lifetime allowance charge is applied. The act of drawing this amount is a "crystallisation event" which will cause your pot to be tested against the LTA.

The example here is instructive:

https://adviser.royallondon.com/tech...owance-charge/

[Lance]

£300k to £1million in 20 years assumes around 6% annual growth. Quite achievable.

21 years at 6% /pedant

Still optimistic in my view. There's a reason why endowments are all under-performing and that reason is optimistic growth forecasts. All around the 5,6,7% range.
Historically low inflation, with no sign of a change, and significant changes to the worldwide economies in the next two decades, does not make a stable market.
Yes you can get 6%, or more, if you have the right stocks at the right time. Hindsight is a great investor.
Try doing it for real. Year in, year out.