SIPP's for Old Guys

[paulnumbers]

It's quite mechanical isn't it? as a higher rate tax payer utilising salary sacrifice and getting the employer NI contributions too, if you gave up £600k of earnings, the SIPP would have been topped up to £1.177m. If you're a lower rate tax payer in retirement, you'd pay 15% tax, so that would be reduced to £1,000,655. after tax. So yes, quite juicy!

If even you were a higher rate taxpayer in retirement for all of the income from the SIPP, you'd get £824,068 out

Yes but you are not comparing like with like. A true comparison would, for convenience sake, show the difference between putting 20K a year into an ISA and 20K (before any tax adjustment) into a SIPP. Assume the same RoR on each, and of course the same number of years. Then look at the drawdown and the effect of taxes on that (in the case of a SIPP).

I am certainly not going to assert that an ISA wins in all scenarios. But I do challenge the idea that a SIPP wins in all scenarios. Either could be "juicier" depending on the individual situation.

But then I would add another factor, and that is risk. The risk that future tax rates will be higher, which will favour an ISA. And the fact that the pension money is a hostage to fortune, in that governments love to meddle with the captive money locked into pensions, whereas an ISA can be liquidated at any time tax-free.

Certainly there are some situation where a SIPP is worse, so yes, do the math. But they are the extreme exception rather than the rule.

I take your point on the hostage aspect, and personally I don't think a pension is really worth it for the 6.25% return you'll get if you're not dropping a tax level between employment and retirement.

[Lootman]

Yes but you are not comparing like with like. A true comparison would, for convenience sake, show the difference between putting 20K a year into an ISA and 20K (before any tax adjustment) into a SIPP. Assume the same RoR on each, and of course the same number of years. Then look at the drawdown and the effect of taxes on that (in the case of a SIPP).

I am certainly not going to assert that an ISA wins in all scenarios. But I do challenge the idea that a SIPP wins in all scenarios. Either could be "juicier" depending on the individual situation.

But then I would add another factor, and that is risk. The risk that future tax rates will be higher, which will favour an ISA. And the fact that the pension money is a hostage to fortune, in that governments love to meddle with the captive money locked into pensions, whereas an ISA can be liquidated at any time tax-free.

Certainly there are some situation where a SIPP is worse, so yes, do the math. But they are the extreme exception rather than the rule.

I take your point on the hostage aspect, and personally I don't think a pension is really worth it for the 6.25% return you'll get if you're not dropping a tax level between employment and retirement.

In my case I may be going up a tax level when I start collecting my 3 pensions. The annual income from those three alone will be enough for me to pay higher-rate tax. Whilst when I was working there were strategies I could adopt that kept me out of high-rate tax for some years.

None of those 3 pensions are SIPPs however.

And how to value the legislation risk of pensions? It has been interesting to watch how, over the years, the rules for PEPs and ISAs have been liberalised and made more generous. Whilst the changes made to pension have been more negative. So it matters how you project the future. For example, abolishing the 25% tax-free cash sum would, at a stroke, make pensions suddenly look much less attractive. Ditto reducing tax relief to the basic rate. It is hard to see ISAs being so dramatically made worse, in my view.