Is 58 too old to open a SIPP if you plan to retire at 62?

Hi there,

Having read your articles on pension planning and SIPPs, is it too late to open a SIPP at 58 years old with an aspiration to drawdown the SIPP for 10 years? Or, are there more safer places to put my savings with being so close to retirement?

For context:

I Intend to work until aged 62; I have income covered by part Cash ISA and Final Salary pension (already in receipt); my Cash ISA maxed each year; my Stocks & Shares ISA maxed each year in a global Vanguard VWRP ETF (Acc) Trading Shares account, £12k, and I intend to liquidate in the next 12 months Disposable savings, around £2,300 a month.

Do I either open SIPP Vanguard Life Strategy 40/60 fund to concentrate on safer bonds, or a trading account?

Kind regards

Hi Richard,

The technical answer is yes - you can absolutely invest into a pension at age 58. Generally, you can contribute up to 100% of your relevant UK earnings, subject to the annual allowance (typically £60kpa). The fact that you are already receiving your Final Salary

How does pension tax relief work?

The main attraction of paying into a pension is the tax relief

I think the key question, therefore, is why are you considering the SIPP and what are you trying to achieve with it? Is it primarily about tax efficiency, or are you looking for somewhere to invest money for your retirement?

Is a SIPP more tax-efficient for higher-rate taxpayers?

The tax position is particularly attractive if you are currently a higher-rate taxpayer but expect to be a basic-rate taxpayer in retirement. For example, you could receive higher-rate tax relief on the way in, but only pay basic-rate tax on the taxable element when you draw the pension, alongside having the benefit of the tax-free element.

If you are a basic-rate taxpayer now and expect to remain a basic-rate taxpayer in retirement, the tax advantage is less significant - although the pension still benefits from tax-deferred investment growth and the availability of tax-free cash.

Is a SIPP a "safer" place for your savings than a Stocks & Shares ISA?

In terms of the pension being “safer”, I wouldn't necessarily describe it that way. A pension is simply a tax wrapper; the level of risk depends on what you invest in within the pension. If you open a SIPP directly with Vanguard, for example, you choose the underlying investment and therefore the level of investment risk.

So I would base the investment choice on your attitude to risk and, importantly, what you actually need the money to do in retirement. If you are going to start drawing from the SIPP at 62, you need to consider how much you will need to withdraw and over what period. If you need the money to grow to support your income for 10 years or more, taking no investment risk could actually create a different problem, as cash may not keep pace with inflation.