SIPP money saving hack

Okay, confession time. This SIPP money saving hack won’t change your life. But it could be worth the price of a nice meal out every year.

If I was a better intro writer I’d also highlight it might save you up to 82% on your SIPP fees – which will certainly be true for a few readers.

Either way, it’s surely better to have every pound working for you rather than for the Military-Financial complex, eh?

SIPP money saving in a minute

This tip should only take a couple of emails to sort. It will help two groups of people.

Firstly, anyone who is not maxing out their pension annual allowance and is not using their platform’s SIPP account to pay their fees could benefit.

You could be paying anything from 25% to 82% extra in foregone tax relief if your platform takes your SIPP fees from a linked dealing account.

Secondly, anyone who is maxing out their annual allowance and is using their platform’s SIPP account to pay their fees.

In this latter case you can grow the tax-free space in your SIPP faster by paying your fees from a linked dealing account instead.

This was me for a few years because I didn’t know I could pay my SIPP fees from a non-SIPP account.

Annual allowance headroom step-by-step

If you’re not maxing out your pension annual allowance then pay your fees from your SIPP account.

Set up your monthly direct debit on your SIPP account.
Instruct your platform to take fees from your SIPP account first.
If your platform won’t facilitate this request then don’t fund any account other than your SIPP. Leave enough cash in there to cover your fee. They’ll soon take it.

How much can you save?

A basic-rate UK taxpayer makes a 25% saving by using pension contribution tax relief to help pay their fees.

They’d save £60 on annual fees of £300, for example.

That’s because they only need contribute £240 to their SIPP to gain £300 after 20% tax relief.

A higher-rate UK taxpayer makes a 67% saving.

So, for a higher-rate payer a £180 SIPP contribution magically pays a fee of £300, after 40% tax-relief.

Some additional tax rate payers could save 82%. Some Scottish taxpayers will save at different rates. Anybody who can salary sacrifice into their SIPP to use this SIPP money saving tip will fill their boots even more.

No annual allowance headroom: step-by-step

If you are maxing out your pension annual allowance then pay your fees from your linked dealing account.

Instruct your platform to set up a dealing account for you and to take fees from that account first.
Set up a monthly direct debit on your dealing account to cover the fees.

This way every last pound of your annual allowance can be put to work expanding your tax-advantaged wealth.

Every little bit helps when the Government is shrinking your annual allowance by the inflation rate every year.

Granted, this is like squeezing the last blob of toothpaste from the tube. But who doesn’t do that?

Optimising costs

Relatively minor savings like this will rebound off the incredulity shields of big picture people.

But optimisations stack. The modern world is built on them.

Shave off enough costs like this and they’ll add up like extensions to a money moustache that grows bushier every year.

And of course, optimisation is a psychological comfort and motivator for detail hounds like me.

The originator of this SIPP money saving hack

I can’t sign-off without mentioning that Monevator reader Steve alerted me to the fact that his platform actively made it difficult for him to pay his fees from his SIPP.

I’ve never had this trouble from my platforms. But I did lose out by forgetting to switch my direct debits back to my SIPPs once I stopped maxing out my annual allowance.

Please let us know in the comments if your platform makes it difficult for you to save on SIPP fees – or any other costs.

I’d like to update our broker table with these extra nuggets that passive investors need to watch out for. Reader feedback helps.

Two hidden costs that platforms don’t advertise come instantly to mind:

1. Some platforms aren’t transparent about the currency exchange fees you’ll pay on dividends from funds invested overseas.

2. Many platforms advertise a low dealing fee for regular investing. For example, they say you’ll only pay £1.50 to buy an ETF on a monthly schedule versus £10 to trade whenever. That’s great, but watch out for costly catches.

For instance, some platforms restrict the choice of products available in their regular investing scheme. And some make it hard to undo the commitment.

In contrast one of my platforms lets me chop and change my regular investments every month, or to take a break anytime. So obviously that’s the one to go for if you expect to lean heavily on this feature.

Please add your experiences in the comments so we can create a checklist of questions to fire at new platforms before you transfer to them.

Take it steady,

The Accumulator

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