The Money Mustache Community

Learning, Sharing, and Teaching => Taxes => UK Tax Discussion => Topic started by: dewark on September 24, 2017, 01:48:27 PM

Title: Sipp or auto enrolment pensions
Post by: dewark on September 24, 2017, 01:48:27 PM

New to the forum I have a question re pensions. I am a partner in a small private physiotherapy clinic. We have auto enrolled(for the benefit of our staff mainly). My question is that for someone who is playing catch up (43 this year and my financial planning to date has been a bit patchy to say the least). Am I better to start investing in a SIPP pension, an Index tracker in an ISA wrapper or should I go down the auto enrolment route. I note that Vanguard have recently started selling directly via their own platform in the UK and are looking to introduce a SIPP product.

many thanks
Title: Re: Sipp or auto enrolment pensions
Post by: TartanTallulah on September 24, 2017, 02:27:53 PM
If you haven't already maxed your annual and/or lifetime allowance and aren't planning to retire early, one of the pension options will be preferable to after-tax investment in an ISA.

As a partner, are you eligible for the employer's contribution aspect of your clinic's auto-enrolment pension? That could tip the balance towards auto-enrolment rather than a SIPP. Or you could use both.

My husband's income has just tipped the balance for being enrolled automatically in a public services pension scheme; he's also got a SIPP.     We've decided that he'll contribute to both while we're both working. The SIPP has the advantage of being able to be drawn from 55, whereas he'll need to wait till 67 to take the public services pension without penalty, and I can't imagine him wanting to work till he's 67, especially if I stop work when he's only in his early 50s (I'm slightly older).
Title: Re: Sipp or auto enrolment pensions
Post by: skip207 on September 24, 2017, 02:31:15 PM
Are you a Limited Company?

That is the first big question I think.
Title: Re: Sipp or auto enrolment pensions
Post by: Playing with Fire UK on September 27, 2017, 01:34:31 AM

You say "my financial planning to date has been a bit patchy to say the least".

What does that mean? Do you have a pension at all? Savings? Credit cards or loans? Mortgage? Have you paid national insurance since starting work? Do you have money left at the end of the month or month left at the end of the money? What tax bracket are you in?

Is your aim to retire at a typical age (65/67) with a reasonable standard of living or something else?
Title: Re: Sipp or auto enrolment pensions
Post by: dewark on September 27, 2017, 01:45:32 PM

The partnership is an LLP(limited liability partnership). There are 3 partners all with a third each. We have 2 part time employees. The clinic was established in 2009 any surplus income until now has been reinvested in the partnership. Recently demand is up and we have expanded hence taking on the two members of staff.

I worked in the NHS from 1999 to 2005 and for BUPA from 2005 until 2009 and paid into both of the pension schemes while employed. I have paid NI in both paid employment and whilst being self employed.

I have a joint mortgage with my wife which is a repayment mortgage with interest rates fixed for as long as possible. On the plus side I have no outstanding credit card debt or personal loans on the downside I have no savings having pumped everything into the business. The business at present is growing well and my income has grown allowing an increase in my surplus at the end of the month. My income should increase over the next 6 to 12 months. My main concern is rectifying my lack of pension provision allowing me to be able to retire at 65-67. My wife is an academic and is in a final salary scheme.

I am a basic rate tax player and whilst I am positive about the potential of our practice to grow it will be a while before I need to worry about paying 40%.

I am interested in the suggestion that I could use both a SIPP and an auto enrolment pension. I suspect I may want to save more aggressively than my colleagues. Therefore using a SIPP pension I could do this whilst keeping the profit share from the partnership and contributions to the auto enrolement pension equal.

Title: Re: Sipp or auto enrolment pensions
Post by: RobFIRE on October 08, 2017, 12:30:48 PM
OK, so a reminder of principles first. Pensions allow you to avoid tax up front (the income tax you would have paid gets invested in the pension too), but it is taxable income when you later take the money out in retirement (you will pay income tax if total earnings in retirement are enough to pay it), whereas an ISA has no tax advantage up front, but is tax free to take out again. Both have tax-free growth. So money in a pension is not necessarily better than the same amount in an ISA. The disadvantage of a pension is that any money you put in you can't access until 55, but for you that's only 12 years a way so perhaps less of a concern than for somebody younger who might not want to commit to having their money tied up in a pension.

Auto enrolment versus SIPP:
I know the rules for regular employees and auto enrolment, the standard contributions are 4% employee, 3% employer and 1% from government in 20% tax relief for employee. And employers can offer to pay in more. However, as a partner of a company, I don't know if the regular rule is the same for you or whether directors and partners of companies may be exempt from auto enrolment rules - from a quick google search it looks like "yes" the rules are the same for you, but I'm not sure.
SIPP: you can pay contributions up to the annual allowance and get the tax relief, but no employer contributions.
You can of course have both auto enrolment and SIPP and pay into both, though if you have an auto enrolment scheme you could just choose to pay more than the 4% standard into that.

So, if you can have an auto enrolment pension, take it, because you get the employer contributions on top. However, if those contributions will come out of the profits of the company you jointly own, perhaps that is "your" money in a sense anyway, so it's only really saving the tax you would have paid on the company profits.

Longer term, the other consideration of auto enrolment versus SIPP is that auto enrolment schemes tend to be simple, but may have limited investments and may have higher fund % charges compared to a SIPP (some of the online SIPPs have a fixed platform fee and no fund charges, so once you have 25k or more invested you could save some money by paying a SIPP annual fee of around 100 a year but saving ~0.5% per year in fund fees). However, that is minor for now, and you can always transfer funds from one UK auto enrolment or SIPP pension to another, as and when you have enough invested that fund fee differences are significant. Fortunately, one of the requirements of Auto Enrolment schemes is that the fund charges are relatively low (capped at 0.67% a year or something) compared to historic pensions (fees could be up to 2% with service charges in addition).
Title: Re: Sipp or auto enrolment pensions
Post by: Playing with Fire UK on October 09, 2017, 07:18:43 AM
So from your financial position, saving into a pension seems like a solid plan.

If you can set up your work pension to be in excess of what is required for auto-enrollment, it should serve you well. In particular, look for low-fee providers. You can also allow your work to pass on the savings from any employers' NI contributions (I think this will benefit your members of staff more than yourself).
Title: Re: Sipp or auto enrolment pensions
Post by: dreams_and_discoveries on October 13, 2017, 07:01:47 AM
Agree you need to contribute to a pension, and it sounds like the discussion you are having is whether to contribute more to company (auto enrolment) pension or set up a SIPP?

Director pensions are fantastic tax wise and reduce corporation tax, I'd get yourself some salary sacrifice type arrangement set up in the company if you can.