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Thread: ISA v SIPP?

  1. #1

    ISA v SIPP?

    For someone (not me) not on a high income and thus would never max out their annual ISA allowance and has about 15yrs to retirement what are the pros and cons for ISA v SIPP?

    A few years ago the Personal Pension rules were far more stringent and I had resolved to rely more on my ISAs to keep me going in old age but now the SIPP/Drawdown and Inheritance rules are much more relaxed.

    But ISAs seem less hassle and interference, very little paperwork, subject to less changes and apart from when the tax is paid seem all around a simpler deal.

    Your thoughts appreciated.

  2. #2
    IMHO, the real benefits of a SIPP don't really kick in until you're paying higher-rate tax, in which case pensions become a fabulously useful tool for not paying 40% now but paying a lower rate in the future (future government meddling permitting).

    Sounds like that's unlikely to be the case here (unless you have a strange definition of "not a high income"). In my relatively low-paid youth I certainly concentrated on feeding my PEP/ISA before getting interested in personal pension contributions once I hit the higher-rate band.

    Of course you should always make full use of any workplace pension scheme to take full advantage of any employer contributions on offer: that's just "free money".

  3. #3
    "But ISAs seem less hassle and interference, very little paperwork, subject to less changes and apart from when the tax is paid seem all around a simpler deal".

    Agree entirely. Stick to ISA's. For the reasons you outline. Far too many costs and assorted charges with a SIPP - and your control is limited.

  4. #4
    "Not high income" means as I said, not enough to max out the 20k ISA allowance or even be anywhere near high rate of tax. Though I think there may be some benefit of personal pension for someone at the very low end?

    I have to say I worry sometimes also about workplace pension when one reads some of the headlines but otherwise of course it makes sense (subject to t&c's).

    As a small business owner I was "pushed" into Personal Pensions in the late '80's and my then partner lost out heavily on deciding to return to Australia to live.

  5. #5
    IMHO workplace DC pensions (at least from the "big name" providers my previous employers in the last couple of decades have used) have been appalling laggards on cost reduction... I've seen monthly account service charges, really slimy commission-hungry salespeople (back in the 80s&90s), ridiculous inflated OCFs for non-"house" funds, initial charges still being charged long after ISA funds had stopped charging them, zero signs of any move to "clean priced" OCFs after the RDR reforms... Not to mention the fact I can move an ISA in a few weeks, whereas DC-to-SIPP transfers have always taken months. No wonder the industry has a bad rep. The solution is for more people to take control or at least take more interest in an asset which is likely to be the first or second most valuable thing they own... and yet people seem to care far more about where they can get another 0.1% on their cash ISA than whether they could shave 1% off their pension's annual costs. One of my big investing regrets is not taking more control sooner and making more of a fuss about crappy work schemes. My theory is the industry shamelessly exploits people's natural aversion to talking or thinking about anything related to ageing/frailty/mortality etc.

  6. #6
    A couple of years ago my sister was complaining about her 1% Cash ISAs and I spent a couple of sessions explain Funds etc and how to see what was available, and with a bit of guidance she selected what she felt comfortable with and is 30% up (I wish I'd followed her choices!!).

  7. #7
    I think concerns about 'paperwork and hassle' are overstated. I have consolidated my pensions on a single platform and have executed two BCE (benefit crystallisation events) to date. a BCE is when one moves part of a SIPP fund into Drawdown and takes 25% tax-free cash in the process. It really is not a big deal.

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