Dumb pension question

No, you don't have to tell anyone that you have retired, you don't even have to retire to take your pension.

Why not ?

Daytona

Why not what? Are you asking why I think a SIPP isn't as attractive as I first thought? If so the answer is that I'd naively assumed that I got the tax back via a SIPP but:

(using rough figures)

You supply 75% of fund tax back makes it 100% i.e 25% of the tax you paid is refunded. Next day you take a 25% tax free cash lump sum i.e. the tax you paid is now yours to spend. The 75% left you now take as a draw down and pay tax on it at 25%. Assuming you clear the fund you now have

So to make it better than a 5% bonus you have to either do well at making the fund grow tax free or take the draw down at a time you are paying no tax. Its not that much better a deal than an ISA - which is something I seem to remember reading on this newsgroup. mikej

mikej

You're correct in your analysis. I wasn't being funny - just wondering if it was something other than the tax in/out issue.

Glad you've got your head around it, at least you understand the issue when the majority probably don't.

Daytona

I know you weren't being funny - but your question was abiguous and I might have been wasting everyones time.

I think the SIPP idea is very clever and it contains just enough potential but minor advantages to make it just worth while. After all maybe one will be so poor in retirement that the tax IS avoided. Perhaps the small percentage advantage will pay for some of the managment charges and increasing the total fund by "borrowing" the tax does help get a better total return by increasing the interest earned (roughly P% to 1.25P% i.e about 1% extra per annum).

What I can't fathom is whether there are any more subtle advantage to it such as inheritance. If I put some money in a SIPP then my next of kin get it and can keep it as a SIPP - is this an advantage or is there a catch I'm missing. Is this a way of creating an inheritable pension? mikej

The tax-free growth is a major advantage. Also there are monetary limits on ISAs that may of course not bother you.

Agreed both are the reasons I've decided to go with it - but any spare cash I have is going into ISA first as its nearly as good and less painful to get at :-) mikej

Basically, the pensions industry tried to develop products such as family pensions based on government proposals, which were changed before being enacted. The current official view is that government does not want pensions to be used as a means of IHT avoidance. Therefore, on death, money can only be paid without tax to dependents and charities.

Ignore the stuff about death benefits from insurance policies -

hth

Daytona

In message , GB writes

But a properly managed bare portfolio of UTs can maximise CGT allowances and give as good an outcome and better wealth protectionon death.