Do I want an ISA?

[expat]

5000.00 in MyCo Ltd account.

Scenario 1.
Pay out as salary:
Er NIC 567.36
Gross salary 4432.62
Ee NIC 44.33
PAYE 40% 1773.05

Net salary 2615.24.

Put in ISA at 6%, after 10 years will have 4683


Scenario 2
Employer contribution into SIPP.
SIPP 5000.00
Immediately take out tax-free 25% 1250 (I'm over 55)
SIPP has 3750.00
Make no withdrawals yet. Keep in cash at 4%
after 10 years, will have 5550.
And I got 1250 to spend.

[Moscow Mule]

Looks like you answered your own question...

[TheFaQQer]

Depends whether you are going to want the money in under 10 years or not.

If you might, then ISA rather than SIPP. If not, then SIPP rather than ISA.

[Emigre]

Income from SIPP is taxable at marginal rates, income from ISA is tax free.

Also, you need to consider inheritance issues associated with both. ISA can be passed on, SIPP more complex but mostly not.

[pmeswani]

5000.00 in MyCo Ltd account.

Scenario 1.
Pay out as salary:
Er NIC 567.36
Gross salary 4432.62
Ee NIC 44.33
PAYE 40% 1773.05

Net salary 2615.24.

Put in ISA at 6%, after 10 years will have 4683


Scenario 2
Employer contribution into SIPP.
SIPP 5000.00
Immediately take out tax-free 25% 1250 (I'm over 55)
SIPP has 3750.00
Make no withdrawals yet. Keep in cash at 4%
after 10 years, will have 5550.
And I got 1250 to spend.

As already stated by someone else... I think you have answered your own question. :P.

If you are with Hargreaves Lansdown, I would look at putting the money into the SIPP as cash for a while and let it earn 5.5% (pre-tax) interest. Invest what you can into some funds and let it grow.

[ASB]

Scenario 2
Employer contribution into SIPP.
SIPP 5000.00
Immediately take out tax-free 25% 1250 (I'm over 55)
SIPP has 3750.00
Make no withdrawals yet. Keep in cash at 4%
after 10 years, will have 5550.
And I got 1250 to spend.

I though that when you took the benefit of the tax free lump it implied you were going to start drawing it and thus you had to take it on the entire pot (and start taking the benefits of the accumulated pot - which I known are more flexible from a SIPP).

[Of course it may be possible to create one standalone SIPP specifically for this purpose].

It might be worth considering immediate vesting of an annuity and then reinvesting the proceeds, they can be appropriate in some cases.

[expat]

I though that when you took the benefit of the tax free lump it implied you were going to start drawing it and thus you had to take it on the entire pot (and start taking the benefits of the accumulated pot - which I known are more flexible from a SIPP).

[Of course it may be possible to create one standalone SIPP specifically for this purpose].

It might be worth considering immediate vesting of an annuity and then reinvesting the proceeds, they can be appropriate in some cases.

AIUI you can take the tax-free lump sum and "crystallise" the remaining 75% (of the notional 100% that you just activated, which may be less than the full pension fund), as an Unsecured Pension, usually called "income drawdown", but until age 75 you are not obliged actually to take the income.

Immediate vesting with reinvestment is indeed an idea, but there are snags. HMRC do not let you take 25% tax-free and then reinvest that (how do they know?)

I probably would create a separate SIPP for this purpose. However ISTM that most SIPP providers charge for administering a pension that is in drawdown phase (e.g. Hargreaves Lansdown 150.00/y) so you would want to have only 1 such, even if it had several "events" of withdrawing lump sums. And obviously to avoid SIPPs where that event was charged.

PS I am not 100% confident that the lump sum will always be tax-free, which is one reason to take it soon. I note with dismay that its name has been changed from "tax-free lump sum" to "pension commencement lump sum" and I can not help but wonder why the words "tax free" have been removed.

[expat]

...
However ISTM that most SIPP providers charge for administering a pension that is in drawdown phase (e.g. Hargreaves Lansdown 150.00/y) so you would want to have only 1 such, even if it had several "events" of withdrawing lump sums. And obviously to avoid SIPPs where that event was charged.
...

For the record, I was wrong about Hargreaves Lansdown's charges. They are:
75.00 each GAD calculation
10.00 alter (regular) payment amount/frequency
25.00 ad hoc payment.

(supposing income drawdown, not annuity purchase).

The GAD calculation ("Government Actuary's Dept) is the calculation of how much you are allowed to take out in income. They must do this every 5 years, and will also do it every time you move money from your pension account into your drawdown account. It looks to me like regular monthly in-and-25%-out might be impractical, if it triggers a 75.00 charge each time. OTOH annual might be OK.