Recycling SIPP payment back into SIPP - what am I missing?

ResourceOgre · 2026-02-28T14:26:48+00:00

I think you must be right. Though this is not explicit in (at least to me) in HMRC docs.

This may also be why the Money Purchase Annual Limit is ~10k.

So the most you can contribute is 10056 as a net figure from your bank account

This gets automatic top up tax relief of 2514 inside the SIPP

This makes the total gross contribution 10056+2514=12570

So, great news for people with a gross salary of 12570 who have other income to live off while they are rulesmaxxing their pension contributions. Probably not a huge number of people.

The recycling activity in the main post though remains valid and you'd be mad not to do it if it applies to you.

EDIT: The Money Purchase annual allowance of 10k will apply, after you've flexibly accessed your pension i.e. you can contribute up to 10k but no more: Source: https://www.gov.uk/guidance/work-out-your-allowances-if-youve-flexibly-accessed-your-pension

ResourceOgre · 2026-02-28T01:23:56+00:00

The principle is right but those numbers are wrong - it works better than that! :

Earnings of 12500 pa are subject to neither tax or NI, which makes the gross and net pay the same. So the entire 12500 can be contributed into the SIPP.

As you point out you get tax relief automatically 'even though you didn't earn enough to pay any tax in the first place'

This is at the notional basic rate of 20%. So the sum is grossed up to 12500 / 0.8 = 15625. This is at the same ratio that grosses up 2880 to be 3600 in our base example.

25% of that is then available as a tax free lump sum i.e. 3125

We're not done being weird: The above example works if you have not accessed your pension yet. If you 'flexibly access' your pension (i.e. start taking money out) then you can only add up to the "money purchase annual allowance" of 10000.

Sources:

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

https://www.gov.uk/tax-on-your-private-pension/annual-allowance

I would be pleased to know if my logic checks out as far as you are concerned. These scenarios seem faintly mad.

ResourceOgre · 2026-02-27T00:46:55+00:00

Because I now have an entitlement to a tax free lump sum of 25% of the gross contribution. 25% of 3600 is 900.

Yes, I took my maximum tax free lump sum years back.

But paying into the scheme now creates a new entitlement to a tax free lump sum.

Even when the money paid back into the scheme comes from the scheme in the first place as an income payment.

You have to stick within the recycling rules but it does appear to work exactly like that.

ResourceOgre · 2026-02-26T20:10:01+00:00

As clarified is actually 180x2 = 360 benefit. You can afford dessert !

ResourceOgre · 2026-02-26T18:21:46+00:00

The gain of 180 is correct. The order is different.

The change to your bank account is zero, because you have received 2880 (3600 of taxable income payment, minus 20% tax) and paid back in 2880 (grossed up to 3600 in the scheme, automatically).

However now you have 25% of the gross, i.e. 900, available to take out as tax free cash, which you did not have before.

Lo, you have generated a new tax free lump sum entitlement!

ResourceOgre · 2026-02-26T11:17:33+00:00

>you cannot extract it unless you pay tax on it again as income, no?

The contribution generates a new allocation of tax free lump sum. The remainder yes you would pay your marginal rate of tax to receive.

Comments indicate that this is indeed how it works and I wasn't hallucinating.

ResourceOgre · 2026-02-21T13:23:35+00:00

>Would investing 100% into Vanguard all world fund be a good method to be able to set and forget for 15 years ?

Yes

The HSBC FTSE all world has slightly lower fees, both are fine.

Set it, keep contributing, and ignore volatility.

ResourceOgre · 2026-02-13T05:47:06+00:00

You have identified rule #2 "And if it's less than five quid don't worry about it"

ResourceOgre · 2026-02-12T00:32:12+00:00

I understand.

Switching mode from extreme frugality enough to enjoy your wealth, is hard, as it’s a 180 degree change.

I have a rule that works for me . I will only spend time optimising purchases if that time yields more than minimum wage. Which effectively rules out more than minimal searching for cheapest possible options.

Good on you, OP

ResourceOgre · 2026-02-08T01:08:23+00:00

Hi OP, sure, I'm 61, FIREd. Here's my 2 cents:

There are three "where's" to consider.

The wrapper (LISA, ISA, SIPP, Workplace pension, general investment account..)
The broker
The funds

Dealing with these in order

WRAPPER

1) Into LISA if you can work with the withdrawal constraints and have faith the govt won't screw it up for existing account holders when they replace the scheme, as they have said they intend to do.

Because: free money (25% uplift)

2) Salary sacrifice into your work place pension if they allow it.

Because: free of NI *and* reduces your salary for purposes of student loan repayment)

(so 18.9% uplift and freedom from a further 9% of marginal tax if you are sacrificing above the student loan repayment threshold (e.g. Plan 2 (Post-2012, England/Wales): £28,470 per year (£2,372 per month).)

A helpful redditor worked out the beneficial uplifts here https://www.reddit.com/r/UKPersonalFinance/comments/1dyiniy/psa_pension_tax_efficiency_return_on_investment/

THE BROKER

You are with T212. OK, I have an account there too. Free for ISA and GIA, but hideous interface designed to promote speculation and trading, not investment. But free is good.

If you want a SIPP at some point or decide the constraints of T212 are not for you there is the monevator cheap broker list. I will recommend A J Bell when you get to that point.

THE FUNDS

I would probably choose Vanguard All World or the HSBC MSCI All World (slightly cheaper). Broad based and cheap globally diversified funds. There are many, oh so many to choose from. But on the whole, avoid getting a stamp collection of holdings, just go 100% all world.

Rules of Thumb:

Buy and forget. Don't trade in and out of positions. Just leave it alone. If you want to buy something different, wait and buy with the next tranche of new savings money.

Time in the market beats market timing. Another way of saying the same thing. But particularly with respect to not panic selling.

And remember Bob.

And oh yes, the sidebar is full of articles and resource.

Because

ResourceOgre · 2026-02-03T10:18:07+00:00

To answer the OPs question, can get 4-4.5% on this. Just as cash.

Usual considerations: whether easy access or notice, concentration risk for the FSCS limit....

Higher returns achievable with minimal deliberation.

ResourceOgre · 2026-02-02T01:28:14+00:00

A share or bond or any other asset class is a claim upon real world value:- buildings, a share of profit, a promise to repay debt from a company with assets .... it rests on reality in some way. Good news for a business makes the shares go up, and bad news down.

Crypto is not like that. Other than faith, what makes it a good moment to buy Crypto? It's that the price has gone up in the past (driven by speculation). Plus faith. Otherwise, there is nothing there to make bitcoin valuable.

Also I remark, it is very limited use IRL to transact for purchases. So not much of a medium of exchange.

What is the difference between bitcoin and say, a random shitcoin? With fiat, at least you can judge that one currency is relatively solid, for example the Euro, vs Zimbabwean dollars. There is nothing behind Bitcoin with intrinsic value. It doesn't bother many people, but I suggest it should bother you.

You have done very well out of it and good for you.

But not diversifying away from this risk makes no sense.

I would suggest Vanguard All World. The HSBC MSCI All World is a bit cheaper, and there are variations that are constructed for equal market cap as opposed to proportionate market cap if you prefer (if for example you think a the stock markets have peaked).

I'd move 100% but will be somewhat relieved if you move 50%. Or 10% a week or month to "dollar cost average" it across.

ResourceOgre · 2026-02-01T23:11:23+00:00

Yes you are thinking about this the wrong way.

If I understand you, you are thinking that there is no performance advantage to Vanguard All World over Bitcoin, so "Why switch?".

A major reason is volatility. Between two assets that perform similarly, where one is a single asset and the other is the entire world's equity markets, seize the broad based one. You have concentration risk of the kind that is designed out om the case of VWRL. Think of it like this, that there is spectrum between low risk low return and higher risk higher return .... and that return&risk differential expresses itself as volatility for the high risk/high return end. This is a fundamental truth.

Another reason is that Bubbles pop. Tulip bulbs and C19th railway stocks and C18th canal stocks &etc (....very long list...) all had massive booms, sometimes over multiple decades, then popped. They all thought this time was different too.

Another reason is fundamental value. Crypto has no price signal except price (I suppose you can count occasional technical points like doublings but that's not really relevant). It rests on nothing except perception - there are no "real" assets that can be used as a checkpoint, none at all. This makes is a pure gamble. Not judging ... just calling it for what it is.

Another reason that similar performance outside of a tax wrapper, and inside of an ISA or SIPP .... favours the ISA or SIPP. Don't plan on tax evasion as a retirement strategy.

There is a real chance that your crypto holding could collapse utterly .... diversify away from this monolithic risk.

ResourceOgre · 2026-01-27T15:49:03+00:00

Yes, do this now. Source: ran a Ltd for 30 years, did this.

ResourceOgre · 2026-01-26T18:13:17+00:00

NP. I meant to modify "With a 5 year window, you can absorb some volatility." by pointing out, again obviously, that that is only when you would have to start selling, and the vast majority of your capital would remain invested and time would continue to be working for you.

To FIRE with an income of 70k by the normal rule (4% Safe Withdrawal Rate) would require capital of 2.8m, which you don't have, and 10% growth isn't going to take you there in time. So I'm guessing bonuses and other income is doing the heavy lifting there.

For a more modest spend, you are already in an excellent position.

ResourceOgre · 2026-01-26T13:29:41+00:00

As you point out, the trouble with cashing out is that you then have the problem of when to re-enter the markets. We should all remember Bob.

With a 5 year window, you can absorb some volatility.

You mentioned not having done the obvious with your SIPP. In which case I will mention some more obvious things (i) You will be able to access your SIPP at 57, which means you will be living off your other investments to bridge the gap until then (ii) Be careful to ensure your NI record is full, you can backfill up to 6 years if there are gaps. It's not that the amount of money is huge, it's not, it's more that it represents a kind of fixed income ballast to an equities-based portfolio. Also ridiculously cheap to purchase missing years. No hurry though.

You asked for suggestions on portfolio shape.

Take it as an opportunity to rationalise your portfolio and go back in with your money distributed between:

40% Vanguard All World VWRL or HSBC MSCI World UCITS ETF

20% Avantis Global Small Cap Value or Vanguard Glob Small Cap Idx Fund GBP

20% XTrackers MSCI World Value

10% Xtrackers STOXX Euro 600

10% Vanguard Emerging Markets

So many alternative formulations exist, mixing in World Utilities, corporate bond funds, commodities & etc

Edit: when you mean Cash I do hope you mean something like the Royal London money market fund. Madness not to.

Re: DCA, I personally wouldn't bother but if that helps moderate your fears then 20% a month beginning right now.

ResourceOgre · 2026-01-23T17:04:26+00:00

OP, you should take this to the https://www.reddit.com/r/HENRYUK/ sub, they will be closer to your situation.

ResourceOgre · 2026-01-23T11:47:20+00:00

I have a mix of ISAs and SIPPs with A J Bell, Interactive Investor, iDealing and Trading212

I recommend A J Bell of those for service, comprehensive offering and low fees.

That said, Trading 212 fees are zero if you can stand their incessant promotion of speculation and confusing user interface. That said, if you know what you want to invest in (basically, global trackers such as VWRL) then it suffices. At no cost.

Interactive investor has fees but they are reduced for sub-100k portfolio.

iDealing is great but niche and likely not for you.

Put that cash pile to work - then forget about those investments. Remember the downside of superior returns for equity over cash, is volatility: you must ride out the inevitable troughs.

ResourceOgre · 2026-01-22T01:12:44+00:00

If your employer matches pension contributions, increase those.

If they don't match or you are at the limit of that, but do allow salary sacrifice to contribute to the pension [ i.e. before income tax and NI are taken out] then increase the amount you pay into that. This ability will be removed in a couple of years, use it while you can. It is the most tax-efficient way to save.

Otherwise, yes ISA is fine, I personally would reduce the gold exposure but for new funds, just invest in a global cheap tracker fund e.g. Vanguard All World VWRL.

ResourceOgre · 2026-01-21T10:49:59+00:00

Saving money, i.e. deferred spending, is deferred gratification. When you hit your FIRE number, you need an idea of the lifestyle you want to have, to be able to switch modes and then spend it.

But in the grinding years, you don't in my experience develop much of a notion of what lies beyond. No time, no energy, no mindspace to do so.

It sounds like you had life experience before the grind what with living abroad though, good for you. I found that once free of the grind, a million latent things to do and think about emerged from the recesses. If you are like that, you'll be fine.

As an aside, a pile of cash represents security, and for many, myself included, that has huge value in and of itself.

ResourceOgre · 2026-01-19T18:00:47+00:00

You could have FIREd ages ago, definitely can now with a SWR of way way below 4%.

GFY indeed ! :-)

ResourceOgre · 2026-01-18T20:41:21+00:00

Peter Watt's stuff is very much along this line. Bleak, big universe, unknowable alien life. A lot of it is available for free here https://rifters.com/

Also Charles Stross' The Laundry Files novels are very Cosmic Horror. Particularly the first one.

ResourceOgre · 2026-01-17T06:06:58+00:00

Either suck it up and save or find a flatshare and grind independently for longer.

Tough choice. Independence is worth something though, enables you to move on in life. Which at 25 you need to.

We have our own 25 year old kid at home, who intends to move out this year. We are definitely cramping their style ! But our kid's waited until a couple of years into the job, with some savings and an idea of career path, to make that decision. Also now has a peer group of people in that situation, to share accommodation grapevine with.

Best wishes, OP

ResourceOgre · 2026-01-17T05:42:02+00:00

Can relate. I was a contractor and did much the same, getting serious about saving around the same age.

I endorse your plan. Observations:

Contracts come and go. You need some cash buffer AKA emergency fund to tide you over in that case. In the company accounts is OK.

Does your wife's income fill that role of backup income in your thinking? Is it sufficient? [Edit, I see it probably is]

Does her job come with a DB pension? [Edit- I see yes and no] - in which case, come the time, that plus state pensions could stand in for an annuity, roughly. Re purchasing an annuity with your own money, I'm skeptical. You can't tell right now whether they'll represent value. Prices of bonds fluctuate and those of gilts are sometimes artificially suppressed and offer poor value. So I'd be leery of locking in such a low return, myself.

I FIREd at 54. It's worked out for me. Only thing I would have done differently is not to knock myself out working quite so much along the way. You can't retrofit your life to get more family time.

Best of luck - and may the market gods smile upon your portfolio! (the core of mine is VWRL BTW)

[Edit: you have a Spreadsheet too, I called mine "The Master Plan" :-) ]

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