• David Livingstone

What Are SIPPs Pensions?

Updated: Feb 6, 2019

What Are SIPP Pensions?

Self-invested Personal Pensions (SIPPs) are a form of pension scheme which hands you maximum control and freedom, including if you move abroad. You get to decide how your hard-earned money and assets are invested, rather than leaving it in the hands of an anonymous, disinterested pensions advisor back in the UK. No other form of UK pension provides you with such flexibility and opportunity. If you are confident in your ability to make wise investment decisions and are willing to take the risk, this could be the best pension scheme for you. Get it right and you stand to substantially improve your pension.

We are currently living in an age of autonomy. People are increasingly mindful of where their money is being spent and by who. You want to know that you’re getting value for money if you’re paying someone to act on your behalf. Pensions are no different. Double check that you know exactly how much you are currently paying for the management of your pension portfolio and decide whether you believe that is a reasonable figure. You might be surprised to see just how much your pension management costs.

SIPPs are ideal for anyone with multiple pensions who is looking to consolidate them into one and gain a greater level of control. If you are attracted to the flexibility that a SIPP offers but have concerns about your investment skills or the time required to manage it, you can always choose to employ the services of a financial advisor to guide you. For expats overseas, we recommend choosing a financial advisor with excellent knowledge of your resident country’s pension law.

How Do SIPP Pensions Work?

Easily managed online, in a similar manner to online banking, you can have a comprehensive view of the status of your pension and investments whenever and wherever you want. You (or your personal advisor) are able to manage the entire pension process from start to finish, making contributions or withdrawals as and when you please.

Currently, you are free to withdraw money from a SIPP pension from the time you turn 55, although this will rise to 57 in 2028. You don’t have to have retired in order to do so. 25% of your total funds can be withdrawn tax free but from that point onwards you will be required to pay income tax on withdrawals, whether they’re lump sums or an annuity.

Contributions can made on a regular basis or as the occasional one-off, both by yourself or your employer.

What Tax Benefits Are Associated With SIPP Pensions?

As with other forms of personal pension, the UK government offers a 20% pension tax relief on SIPPs. For every £1 that you pay into your SIPP, the government will pay in an additional 20p. Top earners who pay higher rates of tax can apply for further tax relief on their SIPP, up to a total of 45%. Each year, up to £40,000 of your pension contributions will qualify for tax relief.

You can continue to contribute to your SIPP even if you are no longer earning. Tax relief will apply to up to £2,880 net each year at that point.

How Can You Invest Your Pension?

The size of your final pension is largely going to depend on the quality and performance of your investments. How you choose to invest your money is entirely up to you, and there is a wide variety of options on offer. These include stocks and shares, UK government bonds, open-ended investment companies, exchange traded funds and commercial property (not residential). You aren’t restricted to the offerings of a single pension provider.

In order to choose from a wider range of investment options, you may be required to meet a minimum level of monthly contributions. Remember, because you’re in control of your SIPP, the management fees are minimal, allowing you to set aside more for your payments.

If you are interested in learning more about what a SIPP pension is, or are seeking independent financial advice on your investment choices, get in touch today!

Please note that some of the information in this blog is only applicable to UK residents.

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