Is a SIPP right for us?

Q: I often receive literature about self-invested personal pensions (SIPPs). I look at the information but don't really understand whether there would be any benefit to me (or my wife) in investing through a SIPP.

We're both 69 and have been retired for a number of years. My income is around £23,000 a year, and my wife has no income at all. My income is derived from a war pension of around £12,000 a year and a civil service pension of around £9,000 a year. I also have a couple of smaller pensions, amounting to £2,000 a year.

My wife doesn't pay tax, and I only pay a very small amount of about £200 a year as my war pension is tax-free.

Together we have about £150,000 in personal equity plans [predecessors of ISAs] and ISAs, which are invested in unit and investment trusts.

Given that our tax bill is very low, does investing in a SIPP make sense for either my wife or myself? 

Justin Modray is a former IFA and the founder of

A: SIPPs are like any other type of personal pension, such as a stakeholder, except that they allow a very wide range of investments to be held within them.

Whereas a stakeholder pension might offer up to 40 funds, a typical SIPP will offer over 1,000 from many fund providers, and you can hold shares, investment trusts and exchange traded funds too.

However, this choice comes at a higher price than stakeholder pensions, although increased competition is pushing down prices with the emergence of low-cost SIPPs.

Given that you're retired, does paying money into a pension make sense? It would be inaccessible until you chose to convert it into a taxable income for life by, for example, buying an annuity, which is very inflexible.


There would be a small potential tax benefit for your wife, in that non-taxpayers can contribute up to £3,600 into a pension and still enjoy basic-rate tax relief of £720; however, I'm really not sure that in your position the benefit would outweigh the inflexibility of a pension.

Also bear in mind that pension annuity providers tend to pay poor rates on amounts below £10,000, so you could lose out unless you were able to build up a sizeable fund.

Instead, you should use your personal ISA allowances to help ensure your wife remains a non-taxpayer and to keep your income below the £24,000 threshold. Above this amount, your increased age-related personal income tax allowance will start to decrease; the beauty of ISA income is that it doesn't count towards the £24,000 limit.

Otherwise, everything looks in order - well done on building up a sufficient nest egg to enjoy a comfortable retirement.


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