SIPP Case Study

Deborah Kennedy at the age of 49 is earning in excess of £250,000 per annum with her city employer and decides to review her pension arrangements. She is underfunded but has a current total pension portfolio valued at £400,000. Deborah has recently inherited £200,000 and wants to use this money to boost her income in retirement.

Deborah decides to make a contribution of £133,000 in the 2009/10 tax year and another contribution of the same amount in the 2010/11 tax year. As a higher rate tax payer these two payments amounting to £266,000 will cost her a net amount of £159,600.(after receiving 20% higher rate tax relief through her tax return as well as the initial 20% basic rate tax relief through the SIPP provider)

In March 2010 Deborah decides to take out 25% of £800,000, so £200,000 and she uses this to invest in a portfolio of shares. The other £600,000 she leaves in an Unsecured Pension from which she takes the maximum income which she also then puts back into her pension where she obtains higher rate tax relief.

The above example serves to demonstrate how very tax efficient a Self Invested personal Pension (SIPP) can be.