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We are considering a low cost SIPP as our early retirement plan - any issues with this?

28 May 2021

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Question by Richard

My partner has an NHS pension and has some way to go before hitting the lifetime pension allowance. We have a good size monthly financial commitment that is coming to an end soon. We were thinking of getting her a low cost SIPP and putting the money we were repaying on the loan into the SIPP and getting the 40% tax relief, it won’t exceed the £40k annual pension allowance. We may use the going back 3 years on the relief. We only envisage doing this ideally for 2 years and all being well will use this as our early retirement plan. We therefore aren’t looking for much growth on the SIPP and would even be happy with it sitting as cash. We will then look to drawdown a pot of around £60k over 4 years after which the NHS pension will kick in. Do you see any issues with this?


Answered by Rachel Efetha

Hi Richard,
Thanks for your question. On the face of it, from the information you've given me, that seems like a good plan. Using a personal pension to fund early retirement is a great way of avoiding early retirement penalties on Defined Benefit schemes. One thing to consider is what is your pension provision? Is it equal to or more than your partners? If you don't have as much as her then I'd advocate setting it up in your name as the last thing you want in retirement is for her to be paying tax and you to be paying none, or her paying higher rate whilst you have some unused basic rate.
I'd also like to point out that SIPPs are great if you want to chose your own direct shareholdings or buy a commercial property, but for anything else I'd recommend a straight forward pension like Aviva, Aegon or Royal London which are available at much lower cost and have loads of funds to choose from.

Answered by

Rachel Efetha

Chartered Financial Designer

Rachel has nearly 30 years’ experience in Financial Services, with the last 21 years advising clients. She advises on a holistic basis but particularly enjoys Cashflow Planning to see when her clients can afford to retire, and has reduced grown men to tears twice by telling them they could afford to resign right now. As a divorcee herself, Rachel loves coaching women going through divorce to take financial control, and has successfully argued with solicitors to gain her clients a much bigger slice of the pension pie.