Reply to: When to stop adding to a SIPP

[sludgesurfer]

Another article from the FT on the LTA which talks about the tax charge being the least worst option with updated tables on when the allowance is likely to be breached under various growth scenarios.

It does however talk of "whispered threats" of a further reduction in LTA to £800k or £900k.

https://www.ft.com/content/a59e5427-...4-44b3b4c33bbf

[sludgesurfer]

Yes. A balance between ISAs and SIPPs is important. Especially if you want to pull the trigger on "retirement" before 55.

Monevator did a decent series on this:

https://monevator.com/how-to-maximis...-independence/

[_V_]

Another thing to consider is that ideally you want a balance of money in the SIPP and money in stocks and shares ISA.

Two reasons, SIPP rules mean you don't know what min retirement age will be in 20 years (possibly 60 to 65), and income from a SIPP is taxable once you access it at retirement.

Income and capital gains from the ISA is not taxable.

Therefore, the perfect setup (assuming a couple) is:

SIPP generates up to the personal tax allowance of income, currently about £25K pa, assuming you and your partner have a SIPP each.

25% tax free lump sum from SIPP is used to boost the ISA and/or pay off any remaining mortgages.

ISA generates income above that level taxable level, from dividends and bonds and sale of shares.


This is how I have played it anyway.

[Smartie]

There's an excellent article in The Times money section today with some very detailed analysis on this subject. Paywall though.

https://www.thetimes.co.uk/article/w...-can-gb3mfds2j

[sludgesurfer]

There is an article on the LTA in the FT today. The comments are pretty useful too.

https://www.ft.com/content/48ae7709-...f-3c006805b699

To view it behind the paywall, google "FT the million pound pension problem" hit news and click the top link

[sludgesurfer]

Looking at the history of the lifetime allowance since it was introduced in 2006 - it isn't obvious that it must keep increasing. Who knows what UK or world politics will look like in another 20 years? It might be an easy way for the woke generation to generate tax revenue.

Quite possibly. I'd argue that the LTA of £1.8m (when, from memory the annual allowance was in excess of £200k) was very generous and a goose ripe for plucking. I think the LTA will start to benefit from inflationary increases again post-freeze although I can see higher rate tax relief being reduced/eliminated. Personally, the attraction of reducing/stopping pension contributions at this point for me is limited. I see it as definitely exposing myself to a large income tax hit now rather than a potential large hit later. Sequence of returns risk is very real even after reducing risk as retirement approaches. Although everyone's circumstances are different.

I still consider exceeding the LTA as a nice problem to have.

[PeterE]

Yes, you need to be careful and employ an IFA. You cannot move a SIPP to a QROPS without an IFA. You need to do your research on QROPS. There are a few self-invest QROPS out there that have low annual charges (<£800 for 1 mil portfolio) without percentage based charges. In addition, the IFA you choose needs to be a fixed fee advisor otherwise they charge a % for the transfer. You will probably have to point out the QROPS you want (I did) since the IFAs tend towards the commission based QROPS products. My IFA then researched the option I proposed and their legal department approved it for a transfer.

[cojak]

But watch out for scammers…
http://www.qropsspecialists.com/qrops-scams/

…and HMRC.
https://www.gov.uk/transferring-your...pension-scheme

[PeterE]

One option when you approach the LTA is to transfer your SIPP to a QROPS abroad eg Europe. This is a crystallisation event. You can still live in UK and benefit from the QROPS pension, or you can benefit from it were you to retire abroad. The QROPS can continue growing and it no longer becomes part of your assessment against the LTA. You can continue contributing to your SIPP. The SIPP will only grow with your new contributions and the investment growth of the SIPP, which is a much smaller amount since it is the remaining amount once you have subtracted the QROPS transfer. eg 5% growth on 100k as opposed to 5% growth on 1.1mil since you have transferred 1mil to the QROPS. This should allow you to keep within the LTA as it is increased in the future.

[JJUXI]

I agree with a fair wind you are very likely to hit the LTA even at the earliest point you could start extracting funds from the SIPP. I have stopped contributing to a 500K pot @ 48 for this reason.
The government have made very clear the direction of travel for the LTA with a five year freeze in place even preventing inflation increases. Supertax at 55% beckons above the LTA; why defer income 20 years to pay those sorts of rates?

An alternative is to keep paying in but reduce your risk by increasing the percentage of bonds vs equities. If nothing else, this allows you to withstand a big market crash without any loss of sleep.

[SimonMac]

Have a look at this...

https://www.hl.co.uk/news/articles/l...for-retirement

[Lance]

A tracker has no dividend payments?

Eh? What are you talking about?

Here's Vanguard's FTSE 100 fund. Currently yielding just north of 3.7%. You can purchase accumulation units where dividends are automatically reinvested.

https://www.vanguardinvestor.co.uk/i...rust_fund_link

Personally, I'm not sure why you'd want to purchase it given its woeful underperformance against most other world indices but that's beside the point.

If the fund actually holds the shares then yes it will get dividends.
Trackers don't hold an exact amount of shares to track though. So if they don't happen to hold BP at the time of a bumper dividend payment then you'll not get it.
In fact I'm not sure that a tracker has to hold any shares in what it's tracking.

The point that was made was what the FTSE-100 did over a period, including dividends. I was suggesting they are not guaranteed. I made that point rather badly. Mea culpa.

6% is still optimistic.

[sludgesurfer]

A tracker has no dividend payments?

Eh? What are you talking about?

Here's Vanguard's FTSE 100 fund. Currently yielding just north of 3.7%. You can purchase accumulation units where dividends are automatically reinvested.

https://www.vanguardinvestor.co.uk/i...rust_fund_link

Personally, I'm not sure why you'd want to purchase it given its woeful underperformance against most other world indices but that's beside the point.

[Lance]

It's a challenge if you are trying to pick the right stocks and don't have access to a crystal ball.

If you simply put your cash into the FTSE100 with re-investment of dividends then it's been very achievable.

https://www.ig.com/uk/trading-strate...se-100--200529

are you for real.

For a start a tracker has no dividend payments.
If you have the actual shares in FTSE-100 you will NEED to sell when they leave, and buy when they enter.

And that website shows annualised growth based on the start date of 1984 (high inflation and high returns in those days)

More realistically look at the last 20 years.
FTSE-100 in 2001 was at 5,800
Today it's 7,052

So nowhere near 6% a year.
It's just over 20% in total. Which as a compounded interest rate is just under 1%


I will say it again 6% growth is optimistic.

[czarcasm]

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.

It's a challenge if you are trying to pick the right stocks and don't have access to a crystal ball.

If you simply put your cash into the FTSE100 with re-investment of dividends then it's been very achievable.

https://www.ig.com/uk/trading-strate...se-100--200529