Contribute all salary to SIPP next year?

[Jade]

Hey all,

Hope you're enjoying the sunshine that's appeared in the UK!

Hubby and I are nearly at our number for FIRE. Next academic year I'm reducing my hours and my take home will cover our outgoings (outgoings about £11k pa, I'll probably earn around £12k). Our plan was to keep living on that that till we're ready to move / I go full FIRE in the next few years so our stache keeps growing a bigger buffer but now we're getting nearer we wondered if it would make more sense to pop all my salary in my SIPP to get the 25% uplift and make the most of that while I'm still working? And then withdraw money to live on from our ISAs....

Any thoughts appreciated!

[Affable Bear]

My immediate thinking is this sounds like a good idea!

I think the only thing that really pops in my head is how much of your ISA stache is in stocks as if there is a sudden drop in value you could accidently dent your pot, you could work around this though if you take the money you need out in advance and plop it into the highest interest saver you can find.

The closer you get to the access age of your private pension the more valuable the tax breaks could be as you can get to the money sooner and potentially withdraw at a rate to keep you under the 12.5k tax threshold.

Might be missing something here though but I think it sounds tempting!

[Jade]

Thanks @Affable Bear good to get some validation for my thinking.

I think the high interest saver could make sense.

We're still adding £2880 pa for hubby and I think he can access that this year too (55?). I think it could be a bit of cycling around of money but the uplift makes sense.. at least for my last few earning years.

[Jade]

@PhilB I hope you're well and enjoying the sun! Can I pick your brain again? I've just been looking up contributing into SIPPs for three past years when you've not used the full allowance in those years for SIPPs. I think we spoke about this before. Apologies but I couldn't find  the post..Would you mind explaining it again?

[PhilB]

@PhilB I hope you're well and enjoying the sun! Can I pick your brain again? I've just been looking up contributing into SIPPs for three past years when you've not used the full allowance in those years for SIPPs. I think we spoke about this before. Apologies but I couldn't find  the post..Would you mind explaining it again?

I'm afraid it won't help you as it only applies to the annual allowance, not the earnings.  In the tax year in which you make contributions, you have to satisfy two separate tests:

• You can't make gross contributions of more than your earned income for that tax year (or £3,600 if higher)
• You can't contribute more than the annual allowance (plus any unused AA from previous 3 years carried forward)

If you have enough in your ISAs to manage the cashflow until pension access age, contributing 100% of salary is an excellent idea - we did that for MrsB for her last few years pre FIRE.  As Affable Bear suggests, you need to pay close attention to your asset allocation eg if you planned to FIRE in three years, and you only had three years' worth of money in the ISA, you wouldn't want to be holding that in stocks.

[Jade]

@PhilB I hope you're well and enjoying the sun! Can I pick your brain again? I've just been looking up contributing into SIPPs for three past years when you've not used the full allowance in those years for SIPPs. I think we spoke about this before. Apologies but I couldn't find  the post..Would you mind explaining it again?

I'm afraid it won't help you as it only applies to the annual allowance, not the earnings.  In the tax year in which you make contributions, you have to satisfy two separate tests:

• You can't make gross contributions of more than your earned income for that tax year (or £3,600 if higher)
• You can't contribute more than the annual allowance (plus any unused AA from previous 3 years carried forward)

If you have enough in your ISAs to manage the cashflow until pension access age, contributing 100% of salary is an excellent idea - we did that for MrsB for her last few years pre FIRE.  As Affable Bear suggests, you need to pay close attention to your asset allocation eg if you planned to FIRE in three years, and you only had three years' worth of money in the ISA, you wouldn't want to be holding that in stocks.

Ok thanks @PhilB re the past 3 years question.

It's good that you and @Affable Bear have validated our thoughts and that it worked for you and MrsB. I think we're ok ISA amount wise so will look into doing it and where to store money to live on too.