Updated: November 18, 2019

Should I get a SIPP or ISA?

Should you choose a SIPP or an ISA for your retirement savings? The brokers we work with will give you all the guidance you need

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Tony Stevens

Author: Tony Stevens - Finance Expert

Updated: November 18, 2019

If you’re looking for the best ways to save for retirement or other long-term financial goals, you may be considering investing in a SIPP or an ISA.

Regular contributions to these schemes will give your investments a significant boost – the combined benefits of tax relief, investment returns, and compound interest could really grow your savings pot. The key decision you need to make is which scheme is right for your goals and circumstances.

In this article we’ll look at:

What is the difference between a SIPP and an ISA?

With an ISA you are limited to investing £20,000 per year. There are no limits to how much you can invest in a SIPP, but tax relief will only apply to a maximum investment limit of £40,000 per year.

An ISA will allow you to grow your money with a range of investment opportunities and withdraw it – tax-free – whenever you like.

However, a SIPP can only be withdrawn from once you reach age 55 and this figure is set to increase in coming years. This is a key difference between a SIPP and an ISA.

With SIPP savings, you will have to pay income tax on any money you withdraw beyond 25%. But you may be able to save some tax by taking the money out in stages instead of taking it all out in the same tax year.

However, there are many nuances of differences and pros and cons in different investment schemes. It may be a good idea to take some advice on your tax position and savings goals. Speak to an expert advisor  to learn how to maximise your investment with a SIPP, an ISA, or a combination of both.

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Can you have both an ISA and a SIPP?

The answer is yes! You can reap the benefits of having both an ISA and a SIPP, and this may be the best option if you have multiple savings goals. With both an ISA and a SIPP you can save for the medium and long-term, for your needs and for the next generation.

Investors can also maximise the tax relief on their investments as using both an ISA and a SIPP raises the tax relief limit to up to £60,000 per year. Of course, this is a significant sum, and you can still benefit from the flexibility of having both schemes whatever your savings capacity is.

Investing in both an ISA and SIPP gives you the ability to compartmentalise your investments according to your needs and goals. Getting the right combination of schemes with the best providers on the market will ensure you get the most out of your money.

Can I transfer ISA to a SIPP?

You can’t directly transfer an ISA into a SIPP or covert a SIPP to an ISA. The way to transfer money from one pension account into another is to cash out your ISA and then feed the money into your SIPP pension contribution or vice versa.

Can I transfer ISAs?

Yes. You can transfer your ISAs between providers to get a better interest rate. This doesn’t affect your yearly ISA investment allowance. It’s also possible to combine different ISAs together with an ISA consolidation and transfer ISAs between providers and between investment options.

Can I transfer stocks and shares ISAs?

You can transfer stocks and shares ISAs between providers or turn them into cash ISAs.

Should I Invest in a SIPP or an ISA?

With so many great options available for building up a nest egg for your future, you may be considering the key question: which is better, an ISA or a SIPP?

Here are a few scenarios that investing in an ISA could help you with:

  • Saving for your children’s university fees
  • Savings as a cushion for financial emergencies
  • Saving for a wedding
  • Saving for a special holiday
  • Saving for a house or car
  • Saving for your pension

If you’re saving for a pension or other later life goals, a SIPP can be a great vehicle. SIPPs give you greater control over your investments and they ensure your money is stashed away for the long-haul.

An ISA is also a solid pension scheme option as it places age restrictions on withdrawals. Generally, this type of ISA is more flexible, so if you want to access your money before retirement, you may opt for a Lifetime ISA.

There’s no one size fits all approach to whether to invest in a SIPP or an ISA and the answer will vary considerably depending on your savings goals, age, and financial situation. Find the plan and providers that suit your needs by speaking to a pensions advisor.

Stocks and shares ISA versus SIPP

A stocks and shares ISA is a stocks and shares investment account which gives you the tax efficiencies of an ISA. It could be a higher risk investment account, but returns on your investment could also be better than a cash ISA.

It allows you to hold a wide range of investments in international shares, UK shares, Investment Trusts, ETFs, or other funds.

Stocks and shares ISAs are very flexible, allowing you to access your money when you need it and withdraw without paying any tax – this means you can keep all of your investment growth.

A SIPP offers less flexibility on when you get to withdraw your investment and any money withdrawn beyond 25% of your savings pot will be subject to taxes. However, with a SIPP you can invest as much as you want, whenever you want, and enjoy tax relief on up to £40,000 per year.

The choice of whether to take out a SIPP versus a stocks and shares ISA will depend on your goals, investment risk appetite, financial situation, and many more variables. We can help you get access to a specialist advisor to find what’s right for you.

Junior ISA or Junior SIPP?

If your long-term financial savings goals include securing your child’s future, you may be wondering if you should put your investments into a junior ISA or a SIPP. Both options are often viable options for long-term savings, as with compound interest, even relatively small regular payments build into a significant sum over time.

Junior ISAs provide you with a tax-free savings account, which the child can take control of when they turn 16, and begin to withdraw money from at age 18. But if you want to save for their longer-term future or add to their pension pot, a junior SIPP pension could be the right choice.

A junior SIPP offers many tax benefits such as relief on money going in, possible inheritance tax exemptions and tax-free growth. If you are unsure of which savings account is best for your inheritors, speak to an expert advisor. They’ll help you successfully navigate the investment market.

Lifetime ISA (LISA) or SIPP?

What’s the difference between a SIPP versus a LISA?

A Lifetime ISA, or LISA, is for investors aged between 18 and 39 who would like to save for a first property or for their retirement.

You can save up to £4,000 per year into a LISA, enjoy a 25% government bonus, and withdraw money tax-free. However, cash can only be withdrawn to pay for your first property or for your retirement from the age of 60. A Lifetime ISA will charge a penalty for anyone who chooses to withdraw from it before age 60 for any purpose other than buying a property or terminal illness.

Payments into a LISA account can only be made up to the age of 49; you can’t invest into the account after you turn 50, but your savings will continue to earn interest or investment returns.

In contrast, there are no age restrictions to when you can open a SIPP. It can be opened from birth and you can continue paying into the pension pot for as long as you like. At age 55 you can access the money in your SIPP and use it for whatever you like. A further advantage is that you can pay more into it than you could into an ISA.

Deciding on whether to take out a SIPP or a LISA should be made with the help of an expert – make an enquiry if you’d like us to match you up with one of the experienced pensions advisors we work with.

SIPP or ISA for retirement?

In conclusion, deciding on whether to open a SIPP or an ISA for retirement is an important consideration,-and an expert advisor can help you calculate all possible fees, charges, tax costs and tax exemptions.

You may benefit from a mixture of SIPP and ISA savings for your retirement; there’s no limit on the value of pension savings that you can accrue. However, whatever you save over the lifetime allowance limit will be subject to a tax called the lifetime allowance charge.

Inheritance tax is another major factor to consider when deciding on which retirement pension scheme would suit you. An ISA may offer tax-free growth now, but later on it’ll be subject to inheritance tax. A SIPP could allow more options for passing on wealth inheritance tax-free, speak to a specialist advisor for further details.

Speak to a pensions expert about SIPP versus ISA

If you’d like more information on SIPP versus ISA calculators, lenders, funds and shares, transferring stocks and shares, converting a SIPP to an ISA, best ISA and SIPP platforms, or best ISA and SIPP buy options, call Online Money Advisor today on 0808 189 0463

The expert advisors we work with can talk you through the question of whether to get a SIPP or an ISA or apply for both, providing bespoke advice that’s tailored to your unique circumstances.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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Tony Stevens

Tony Stevens

Finance Expert

About the author

Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

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