JohnB wrote:@SDN123 as others have said, putting £2880 in a SIPP only saves you 1/4*720=180 in tax.
My understanding is that as long as annual earned income (including SIPP withdrawals) are within the basic rate tax band then pension withdrawals are tax free. Meaning all of the £720 is free and, in this situation, my original statement is true. It may not be difficult to keep within the basic rate tax if most of your wealth is in an ISA.
Actually there are real advantages to using a SIPP even if you pay tax on the way out:
I believe that to get to £180 you mean that when I withdraw my £3,600 from the SIPP at some point in the future it will be taxed at 20% (20% of £3,600 = £720 tax) except for the 25% tax free allowance (25% of £720 = £180).
The example given talked of 18 years of saving for a couple, leading to a minimum total tax saving, if both partners pay basic rate tax on withdrawals of (18 * 2 * £180 =) £6,480 for very little effort. Similar to ISAs, SIPPs pay no tax on on dividends, no capital gains tax and no paperwork or reporting to HMRC is required.
Another advantage is that using this allowance gives you £720 more capital per annum to play with during the accumulation phase.
All of which is to be more specific why I agree with you that a mixed approached to tax shelters is best. Putting all of your eggs in one basket is not the best approach.
In these types of threads I often read that SIPPs are under more political threat than other tax shelters. I work on the basis that ALL tax havens are ALWAYS under political threat. I see no evidence, other than newspaper articles or bulletin boards often written by people with their own agendas (that is NOT a personal reference to anyone on this thread), that SIPPs are under more threat than ISAs, or any other tax shelter.
The disadvantage of SIPP is the fixed “earliest withdrawal date” and the further that is in the future the longer the investment is exposed to the risk of political fiddling. However my otyer tax sheltered investments will be needed in retirement too, and so are exposed for approximately the same time period. Change WILL happen. I just don’t know what change and to which tax shelters. Assumptions or guesses can only hurt me! So, again, the best I can do is diversify.