personally I wouldn’t count on SIIP coming before April. great for many if it did, but I wouldn’t expect it.
There is no direct way to transfer from ISA to SIPP even if they existed. And even if there were, I would not recommend doing it. Maxing out your ISA every year should be priority, take a look at how SIPPs (or any other pension) are taxed when you are withdrawing.
This is incorrect, you can contribute to a personal pension (including workplace pension) up to your annual pre-tax salary, if it is greater than 40K then the limite is 40K.
for a salary of 25000, you can contribute to SIPP up to 25000
for a salary of 50000, you can contribute up to 40000
keep in mind any pension contribution from your work (including employer contribution) is also included in this allowance.
edit: also ISA and SIPP contributions are not related, contributing to ISA does not take away from SIPP allowance, they are completely different pots.
ISA vs SIPP
Which is better? This is an interesting question.
Let’s look at a taxpayer who whose marginal rate tax is 40%, both now and in retirement. She wants to invest £10,000 of gross income. Suppose her investment will double in value by time she wants to withdraw and spend. For simplicity let’s ignore dividends and suppose the investment is a non dividend payer such as Amazon shares.
ISA: £10,000 taxed at 40% down to 6,000, then doubles to 12,000 and this is all tax free so she has 12,000 to spend.
SIPP: £10,000 invested and doubles to 20,000. On withdrawal 25% is tax free, the rest is taxed at marginal rate of 40%, giving an effective tax rate of 30%. So minus tax of 6,000 she has 14,000 to spend.
This suggests a SIPP is the better place for retirement savings. The only circumstance in which ISA is better is when someone is taxed 20% now, but expects to be richer in retirement with income taxed 40%. Then the numbers are ISA 16,000 vs SIPP 14,000.
Having said this, SIPP comes with some risks. The government might change the tax treatment (reduce the 25% that can be taken tax free). Also SIPP withdrawals can incur fees from the SIPP provider. SIPP ties up your money until age 55 (or later according to current legislation). ISA can be accessed any time.
Finally we could compare for taxable account
Invest: £10,000 taxed at 40% down to 6,000, then doubles to 12,000. There is 6,000 of gains, which may incur tax of 20%, making 1,200, and leaving 10,800 to spend.
You need to account for the tax free allowance for income tax and the marginal rates. Your not taxed 40% on everything just because you were taxed 40% in the past.
I am assuming we are dealing with marginal rates. Eg someone for whom all other income amounts to £70k, both now and in retirement. For such a person an additional £X will incur 0.40X tax.
There are many anomalies in the UK tax system. For someone with other income amounting to £100k the marginal tax will be effectively 60% on the next £25k above that, because of the 1:2 withdrawal of the £12.5k personal allowance. For any person (except those who expect to be more heavily taxed in retirement) the conclusion remains the same. SIPP is better than ISA, so long as you are content to leave the money locked up until retirement age.
Here, as an aside, is another interesting anomaly. UK dividend tax rates are 7.5%, 32.5% and 38.1%. Income tax rates are 20%, 40% and 45%. Consider someone with £70k pension and £90k dividend income. If the pension increases by £1k that is taxed 40%, but also pushes a further £1k of dividends into the additional rate band. So the effective marginal tax rate on the additional £1k is 40% + (38.1-32.5)% = 45.6%, higher than the 45% rate paid on marginal income by an additional rate taxpayer.
I presume will be only planned for UK residents? Any form of pension plans for other European Countries in the pipeline?
I presumed with 40K invested a year @adindas would hit LTA, which changes things a bit. Also please keep in mind he’s asking moving the money from ISA to SIPP
this is also very important, every year there is a talk about scraping the higher rate tax returns for SIPP contributions. When politics come into play I have very little confidence. Money deposited into ISA is at least safe that we know it is not going to be taxed further.
Having said these, I regularly contribute to both and maxed both for 2020/21 but I am positive I’ll hit LTA in a couple of years so prioritising ISA at this time.
LTA is certainly a problem. Tax is 55% for contributions above that. But in fact I once deliberately incurred that to save some income from the even higher 60% marginal tax that hits at the point that personal allowance is withdrawn.
Pensions are still very “governmental” and although there are protection laws and regulations for pensions across EU, there is not a single pension law. I know Germany has a weird “contribute at least 4% of your income and the government will match this much for you and that much per child” private pension plan. And although there is some customisation, as far as I know there is not a “pick my investments and shares individually” option.
But then again this is probably different for every country.
@AlexK Is there any update on Launch date of Trading212 SIPP and LifeTime ISA Launch date?
You can launch the above stated accounts with very basic features and add the features later on.
The earlier you launch the better for both T212 and potential customers and this is best time to invest as many shares are trading at low prices?
I myself will be able to convince more than ten people to open these accounts with you if you offer them with free commission and no monthly fee.
Still no update on SIPP yet? COME ON T212 WHAT’s GOING ON?!
Good things come to those who wait - I think this is already posted on another forum.