Which SIPP Investment
Question 4: Do Your SIPP Investments Benefit Your Non-Pension Income Or Taxes?
When I bought the kitty litter company, I knew it would help my regular advising work. It increased the contact with many people and led to more engagements. I did not do the investment for that reason. The kitty litter investment was acceptable on its own as an investment. The benefit to my day job was just an added bonus.
This is important to realise. Some projects can have a very positive knock on effect outside your SIPP.
As an easy example, salary sacrifice can lower your tax burden from your income outside of the SIPP. This is not an investment per se, only an aspect of pensions which affects non-pension money. The way this works is to negotiate with your employers to take less salary but to receive more pension contributions. (If you own your own company, this negotiation is easy.) The lower salary causes less tax. Of course it also means less income to live on. Everyone must determine his or her own balance on this issue.
On the other hand, you may be doing a project ONLY for the knock on effect and that is not good. For one thing, that conflict might be viewed poorly by the HMRC. It is crucial to be honest with this potential benefit. Are you giving this investment too optimistic of an appraisal because of the connections you have outside of your SIPP? Is the investment with a relative or colleague? I am not saying you should never invest with such people. I am only saying that you must be sure you are making a good investment with an additional benefit, rather than just throwing away pension money.
With that said, there are also ways to use your pension to fund your day job, say, a business that you own. You must be careful with this because the HMRC is always wary about schemes that might be trying to “sneak” money you of a SIPP via a supposed investment. However, there are a lot of acceptable methods that the HMRC approves. Good advice will steer you clear of questionable possibilities while opening your eyes to methods that are approved. You can be surprised in both directions, both by what is disallowed and what is allowed. This is an area that definitely needs expert advice. Fortunately, many IFAs will have initial conversations for free about this.
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About Dr Matt Modisett
Dr Matt Modisett, PhD, FIA, ASA, MMA is the Director of Financial Guard Limited. You can email Matt at email@example.com.
With more than 20 years’ experience, his career in investments and insurance has spanned the USA, Japan, The Netherlands, Spain, Belgium, Hungary, Australia, and the UK. He was formerly a Chief Investment Officer for an insurer, Asset-Liability Manager for 3 insurers, and has consulted for many years, all for top tier institutions. He has served as Professor of Actuarial Science and also as Professor of Finance.
He holds a PhD in Mathematics, is a Fellow of both the UK Institute and Faculty of Actuaries and the Hungarian Society of Actuaries, and is also an Associate of the USA Society of Actuaries. He has numerous publications to his credit.
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SIPPclub is not authorised to provide advice on regulated or unregulated investments. For this reason, SIPPclub is not permitted to say whether any investment is right for you. Ultimately, it’s your money and your decision. If you need advice, you should speak to an independent SIPP adviser.