SIPP or ISA? Age 60 and reviewing my options

17 March 2021

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Question by Alan

SIPP or ISA? Age 60 and reviewing my options.... I have an uncertain future income (though one which I would hope to pay our way for at least the next five years or so), a decidedly modest pension fund, and £50k savings, currently earning bugger all per cent. I think stocks shares will beat interest over the next five years, and am minded to invest maybe half of it using either a SIPP or an ISA as the vehicle. But which? As I understand it, if I invest £8,000 in an ISA I have an £8,000 fund from which I can then make withdrawals tax free, no strings attached. If I invest £8,000 in a SIPP, the government will add another £2,000, so I have a £10,000 fund, but when I want to take money out, only the first 25% can be taken tax-free; the rest is subject to tax. So far so correct? If so, on the face of it the SIPP looks like the better option: I get a quarter more shares for my money, and if I'm careful in my drawdowns, I should be able to keep future tax low/zero. ISA v SIPP things online all say: 'But - you won't be able to access your money from a SIPP till you're 55'. Well, since I'm 60 that's not a big problem. So, does that make it a no-brainer? Should I (can I?) put £25k into a SIPP with, say, the Vanguard Target 2030 retirement fund, and then just leave it alone till I need to draw funds from it (which could be anything from a two or three years to 10). I have no plans to be an active investor - this would be deposit-account-like set forget, hopefully for five years at least. Thanks for any advice you can offer.


Answered by Daniel Wiltshire

Hi Alan

I agree with much of what you’ve written, but I’m afraid I can’t confirm definitively without a broader understanding of your personal circumstances and objectives.

You’re correct that you can now access your pension, if you choose to do so. But you should be wary of the implications this may have on your ability to make additional contributions at a later date (particularly if you’re still working, or may work in future). Specifically, making withdrawals from your pension could trigger the Money Purchase Annual Allowance (MPAA), which limits the amount you (and your employer) are able to contribute to just £4,000 per year. Any contributions above this may be subject to an Annual Allowance Charge.

For now, (assuming you are still subject to the full Annual Allowance) you should be able to make annual pension contributions of up to 100% of your salary or £40,000 (whichever is lower). If you earn more than £40,000 per year you can also potentially make use of ‘carry-forward’ provisions, but this is a complex area that requires more input.

As for which funds to choose, this will depend on a number of factors, including your attitude to risk, capacity for loss and investment time horizon. Typically, I suggest a minimum investment period of 5 years to support your ability to ride out short term market fluctuations.

I hope this helps.

Daniel

Answered by

Daniel Wiltshire

Independent Financial Adviser

I’ve worked in finance for 15 years, initially training and qualifying as an actuary before becoming a financial adviser. I set up my own independent practice, Wiltshire Wealth shortly after moving from London to Bradford on Avon with my young family in 2017.