Jasmine Birtles answers a question on SIPPs and stocks and shares ISAs in this week's pensions Q&A
Question: I am 70 years old, have a DB pension from which I took a cash lump sum in 2021. In addition I have a full state pension and savings in various accounts.
Can I invest in a SIPP? If so, is there any advantage to doing so, as opposed to investing in a stocks and shares ISA, and is there a limit to how much I could put into it?
Jasmine Birtles is GBN Membership's money expert. Got a question you'd like her to answer? Email money@gbnews.uk.
I’m glad you are thinking along these lines. Many people look to take out their pension even before there are 60 so this looks to me like you are planning on living a good long time (quite right!) and you’re wondering how to make your money work for you going forward.
Yes, you can pay into a SiPP, but you can only put in up to £2880 net per tax year if you’re not currently earning.
If you are earning an income then you can pay up to the amount of your earnings and receive tax relief on it.
I put your question first to David Braithwaite, a financial advisor and founder of Citrus Financial and he added this: “As they are 70, pension rules (currently – this may all change in the next budget!) mean they will only be able to do this until they are 75.
"An ISA can has a limit of £20k paid in per year, as its not related to earnings, and can be paid into at any age.
“The advantage of a pension over a Stocks and Shares ISA is the tax relief they receive as they will pay in.
"They pay the £2880 net, which is then “grossed up” to the £3600, so there is an extra 25 per cent (or £720) in tax relief that’s gone into the pension. A Stocks and Shares ISA doesn’t receive tax relief, but both the pension and ISA grow tax free.
“A pension (again as it stands - but might change post budget) currently does not form part of your estate for inheritance tax (IHT) purposes, so it means this can be quite tax efficient upon death to be passed on, whereas an ISA will be counted toward the overall estate value for IHT purposes so could mean tax is payable at that point depending on the estate size.”
I also spoke to Chris Bail, Managing Partner at Hoxton Weath, and he agreed with David that a SiPP is a great way to save at your age.
He added “When you draw money from the SIPP 25 per cent is tax free (subject to you having available lump sum allowance) and the balance is income taxed at your marginal rate.
"Aside from the upfront tax relief, a notable benefit of a pension is that it will usually fall outside of your estate for Inheritance Tax purposes.
MORE FROM GBN MEMBERSHIP:
"Both SIPPs and ISAs are excellent ways to save tax efficiently and a combination of both approaches often works best.”
If you felt like spreading your money, then put some into a SiPP and some into an ISA.
Usually I say that stocks and shares ISAs are the best for long-term investing but just at the moment there are some decent Cash ISA rates so it’s worth looking at those while rates are higher than they have been.
Jasmine Birtles is a personal finance expert, TV and radio presenter and author of 38 books. Her website, MoneyMagpie.com, covers all aspects of personal finance from money-saving and money-making ideas to investment and pensions information. She is a keynote speaker at conferences around the world.
