A SIPP, or self-invested personal pension to give its full title, is a pension scheme that gives you the freedom to decide exactly how your pension fund is invested. As the name suggests, you make all the decisions yourself and have the flexibility to pick and choose how your money is used, enabling you to build up a sufficient nest-egg for your future.
It’s for these reasons, that many refer to it as a “do it yourself pension scheme”. In its basic form that’s exactly what it is, but in reality it’s a little more complicated. To understand a little more and find out what is a SIPP take a look at our quick SIPP factsheet and start planning for your future.
What is a SIPP?
A SIPP is a kind of personal pension which allows you to select funds and devise your own portfolio, rather than the pension provider doing this on your behalf. Some even allow direct investment in commercial property. They are most suited to those who want more active control over the day to day investment of their pension.
What can I invest in?
Full SIPPs, offer the widest range of investment options with some being completely unrestricted. For example, some of the best SIPPs on the market enable you to invest in the following:
- Shares quoted on a recognized stock exchange
- Unit trusts and OEICs
- Government bonds
- Corporate bonds
- Investment trusts
- Exchange traded funds
- Exchange traded commodities
- Permanent interest bearing shares
When deciding on which SIPP to go for it’s worthwhile understanding the potential investment options coupled with the charges for that specific SIPP. As a general rule, the wider the range of investments the higher the charges. Make sure before you sign anything you have all the potential SIPP investments explained to you. Ask yourself whether you require such a range of investments. For the investment savvy this may be the case, but it isn’t always necessary for all of us.
Are there any tax benefits?
SIPP contributions can potentially receive up to 50% tax relief. This of course depends on your financial circumstances making it important to check with an independent financial advisor.
When can I draw my SIPP?
Once you reach the age of 55 you can start to draw your pension. You can then start to make the decisions on how you want the fund to provide you with an income.
You can take up to 25% of your fund as a tax free lump sum and use the balance to provide you with a pension through income withdrawal. Or you can purchase an annuity from your choice of insurance company.
Is a SIPP right for me?
The real advantage of a SIPP is the wide range of investment opportunities. If you feel confident exploiting these yourself, a SIPP is the right choice for you. If you don’t, opting for a standard personal pension could be the way to go.