Pensions were designed to help us save for retirement. It makes sense to put some money away for our later years, and that’s what pension schemes help us to do.
But for some, the standard personal pension doesn’t offer quite enough flexibility and control over how their retirement savings are invested.
Self-invested personal pensions – more commonly referred to as SIPPs – provide the freedom to choose your own investments from a wide selection of options.
What Is A Self-Invested Personal Pension?
- A SIPP is an individual contract between you and a pension provider. It is a personal pension plan with a wider choice of investments than a standard personal pension plan. A SIPP is a type of ‘defined contribution’ or ‘money purchase’ pension.
- It offers much wider investment powers than are generally available for standard personal pensions and group personal pensions when it comes to saving for your retirement.
- From the range allowed under pension rules, you can choose what investments you want to put your savings into and keep control of them.
Why Consider A Self-Invested Personal Pension?
If you would rather take a greater level of responsibility over the type of investments your pension fund is invested in, a SIPP might be the right option for you.
A SIPP can also be suitable if you want to consolidate all your pensions into one pot before you retire, or if you want to keep your money invested after you retire, so that you can draw down an income from it.
Is a Self-Invested Personal Pension Right For You?
- You should only consider a SIPP if you have experience of investing and are completely comfortable making your own decisions.
- If you don’t have experience, then a stakeholder or standard personal pension may be more suitable for you.
- SIPPs can be more expensive, and their charges could eat into your returns if you only have a small amount invested.
- They are more suitable for people with larger amounts of savings.
- With a smaller fund, you may have a more limited choice of investments, but you could choose a fund that has a range of assets in it, rather than picking your own.
Where Can I Invest My Savings?
If you are looking to put yourself in control of your financial future and have the freedom to select the investments you think will deliver the best returns, these are some of your investment options:
- Investment trusts listed on any stock exchange
- Individual stocks and shares quoted on a recognised UK or overseas stock exchange
- UK or foreign government bonds
- Open-ended investment companies which are recognised by the Financial Conduct Authority
- Gilts and bonds
- Exchange-traded funds on the London Stock Exchange or other European markets
- Bank deposit accounts including non-sterling accounts
- Commercial property
- Offshore funds
- A SIPP benefits from the normal pension tax relief available. To add £100 to your pension, you pay in £80, and HMRC will add basic-rate tax relief at 20%.
- If you pay higher or top-rate tax, you can benefit from claiming back up to 45% (46% in Scotland) tax relief through your tax return.
- If you own commercial premises, SIPPs can offer valuable tax relief. You can ‘sell’ your premises to the SIPP and free up funds to reinvest.
- SIPPs offer Inheritance Tax benefits. They are normally set up under trust, meaning the legal ownership of your pension assets is separated from your other non-pension assets. This means that the fund on your death doesn’t normally form part of your estate and can be paid to a beneficiary without incurring Inheritance Tax.
- If you die before the age of 75, there is generally no Income Tax liability on any money your beneficiaries take out of the pension they inherit. If you die after 75, your beneficiaries pay their own rate(s) of income tax on any withdrawals they take.
Some investments that can be placed in a SIPP are risky and may not be suitable for you. Investments go down in value as well as up, so you could get back less than you invest.
It’s always worth seeking independent financial advice before deciding about investing your money. We would be happy to discuss all your options with you and help you create a vision for your ideal retirement.
THIS ARTICLE IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE INDIVIDUAL ADVICE.