SIPP Pensions

SIPP stands for Self-Invested Personal Pension. A form of private pension, a SIPP provides you with greater control and flexibility over how your pension pot is managed. Rather than leaving it in the hands of an indifferent UK pensions advisor, it is up to you decide how your funds are invested. Such action does require a degree of self-confidence in your ability to judge the level of risk and make prudent investment decisions. However, a Mathstone financial advisor can provide you with expert advice and guidance for that added reassurance. 


Why should you consider a SIPP?

With a SIPP, you can dramatically reduce the level of management fees you pay on your pension pot. All too often, pension managers fail to offer real value for money. As more and more people demand greater transparency and oversight of how their money is being spent, in all aspects of their life, pension management is coming under ever greater scrutiny. Do you know how much you’re currently paying for a pension manager to look after your funds and make successful investments? Is that a figure you feel comfortable paying or would you be willing to lower that fee by taking on the management yourself?

As well as the economically minded, a SIPP is also a potential option for people contending with multiple pensions. For example, someone who has worked for several different companies during the course of their career. A SIPP allows you to consolidate those pensions into one pot, reducing the amount of fees you pay and giving you a clearly overview of your funds. 

Ultimately, a SIPP provides you with a greater level of control and flexibility. It can be an intimidating thing to take on, but that’s where Mathstone comes in. We are experts at advising people currently living overseas whose pension is still based within the UK and would like to assert greater control over it. We are well-placed to advise you on how the pension law of your resident country might impact on any SIPP.

What are the tax benefits of a SIPP

As things currently stand, SIPPs benefit from a basic rate 20% tax relief from the UK government. This means that for every £80 you put in, the government will contribute an additional £20 to make it £100. In line with this, top earners who pay higher levels of tax can receive additional tax relief of up to 45%. Whichever rate you qualify for, it will only be applied to the first £40,000 you place in the SIPP each year. 

You can make contributions into your SIPP both when you’re earning and when you’re not. If you are no longer earning, you will only qualify for tax relief on £2,880 net each year. It is up to you how often you pay into your SIPP, and whether your employer does so too. 

When it comes to withdrawing money from your SIPP, you can withdraw a maximum of 25% of your funds tax free. Anything above that and you will need to pay income tax. This applies to both lump sums and annuities. 

Should you die before the age of 75, the beneficiaries that you’ve chosen can have the entire pension fund as a lump sum tax-free. Only dependants (child or spouse for example) have the ability to access the funds through an income tax-free drawdown or annuity. If you die after the age of 75, the beneficiaries can either take the whole pension fund as one lump cash sum (subject to income tax), take a regular income (subject to income tax) or take lumps sums as and when they like (subject to income tax). 

How easy is it to manage a SIPP

Thanks to the advances in online technology and security, a SIPP can now be comfortably managed online. You only have to log in to the online system to make changes to your investments, contributions and withdrawals. For some more advanced SIPPs, there are even apps available to enable you to make changes on the go. This all helps to cut down on the amount of time you need to spend making adjustments to your investments. 

When it comes to setting up your SIPP, you have two options. Your first option is to start a SIPP from scratch by adding in a large lump sum or beginning regular contributions. Alternatively, you can consolidate multiple pensions into one SIPP. Remember, following the introduction of auto-enrollment pensions you likely already have a personal pension. That is of course, unless you’re self-employed or chose to opt-out. 

Presently, you can begin to withdraw money from a SIPP upon turning 55 years old. By 2028 however, this age will rise to 57. You do not need to have retired before beginning to withdraw money. 

Should you require any assistance in managing your ongoing investments, setting up a SIPP or arranging for funds to be withdrawn, Mathstone are ready to help. 


How much of a difference will a SIPP make to the size of your pension?

The extent to which your pension grows in size rests entirely on the outcome of your investment decisions. With a SIPP, you have a wider range of options than with a traditional pension scheme because you aren’t limited to those provided and approved by the pension management company. For example, you could choose to invest in the following:

  • Stocks and shares

  • UK government or corporate bonds

  • Open-ended investment companies

  • Exchange traded funds

  • Commercial property

Please note that you may not be able to access the full range of investment options without meeting a minimum level of monthly contributions. Remember, this additional cost will be offset by your lower management costs when you move to a SIPP. When you first start out with a SIPP, we would recommend that you invest in a range of different areas in order to mitigate against risk.


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 on this page is only applicable to UK residents