A Self-Invested Personal Pension, or SIPP, is a brilliant way to save for retirement. But I’m also a big fan of the Stocks and Shares ISA. I’ve been torn between which to use, and for a bit of fun, decided to put the question to ChatGPT.
ChatGPT pointed out that both wrappers let investors buy shares, funds, and exchange-traded funds without paying capital gains tax. They also protect investors from paying extra tax on dividends.
The biggest difference comes when you put money in. A SIPP gives investors an immediate tax boost through tax relief on contributions. A basic-rate taxpayer who pays in £8,000 automatically receives another £2,000 from the government. Higher-rate taxpayers can claim another £2,000 through their tax return.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Which gives the biggest tax break?
Money in a SIPP is locked away until the minimum pension age, currently 55 and due to rise to 57 from 2028. Investors can normally take 25% tax free, with the remainder taxed as income.
ISAs work the other way round. No tax relief on contributions, but every penny you withdraw is tax free. Better still, you can take the money whenever you like.
ChatGPT concluded that: “A SIPP generally suits people saving specifically for retirement, especially higher earners, while an ISA offers greater flexibility.”
That’s where I part company with the bot. Personally, I use both wherever possible. A SIPP gives your savings a massive upfront boost, with all growth on top. Investing in an ISA also allows you to manage your tax exposure in retirement. I think the two complement each other perfectly.
One thing I wouldn’t do is ask ChatGPT to choose my underlying SIPP and ISA investments. It’s brilliant tech but lacks insight and can get confused. I favour facts over AI hallucinations.
Here’s a FTSE 100 stock I admire today
At The Twelfth Magpie, we suggest building wealth from investing in a balanced portfolio of FTSE 100 and FTSE 250 shares, and one I admire is insurer Aviva (LSE: AV).
Chief executive Amanda Blanc has worked hard to streamline and sharpen the business and it seems to have worked. The Aviva share price has climbed 75% over the last five years, with dividends on top. The trailing dividend yield is a handsome 5.6% today.
Growth has slowed lately. The stock is up a more modest 7.6% over the last year. It’s beginning to look expensive after its strong run, with a trailing price-to-earnings ratio of 26, well above the FTSE 100 average. Aviva faces stiff competition and still has to deliver on the promised savings generated from its £3.7bn acquisition of Direct Line.
Even so, trading remains encouraging. First-quarter general insurance premiums rose 19% to £3.4bn, while wealth net flows jumped 49% to £3.3bn. The group also has a growing opportunity in bulk annuities, where insurers take over company final salary pension schemes.
I think Aviva is worth considering. Given today’s valuation, though, investors might drip-feed money in, taking advantage of any dips. The one thing stopping me personally is that I already have outsize exposure to FTSE 100 insurers through rivals Legal & General Group and Standard Life.
Should you invest £5,000 in Aviva Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva Plc made the list?
Harvey Jones owns shares in Legal & General and Standard Life.
