What is a SIPP?
In its simplest form, a Self-Invested Personal Pension is a do-it-yourself pension. It’s for people that want more control over where their money goes and how it grows. It is also suitable for people who want to gather all of their pensions into one pot before they retire, or people that want to keep their money invested after they retire, so that they can draw an income down from it.
With the standard personal pension schemes, your investments are managed for you within the pooled funds that you have chosen. SIPP’s allow a lot more freedom to choose and manage your own investments.
What can you invest in?
Most SIPPs allow you to select from a range of assets, such as:
- Commercial Property (such as offices, shops or factory premises)
- Government securities
- Investment trusts
- Unit trusts
- Insurance company funds
- Deposit accounts with bank and building societies.
- Stocks and shares
- Gilts and bonds
This list is, of course, not exhaustive – different SIPP providers offer different investment options.
Some SIPPs start at as little as £50 a month and can be topped up as a lump sum, however in the 2019/20 tax year, you cannot exceed £40,000 per year.
Suitability.
As with everything in the financial world, SIPPs aren’t suitable for everyone. They are suitable for people who:
- Are comfortable with their own investment decisions and who want a wider range of investments.
- Have a financial adviser making decisions on their behalf,
- Are looking to consolidate all their pensions into one place.
- Want to keep money invested after they retire so that they can draw down an income.
Tax Relief
As with all pension schemes, SIPPs qualify for up to 45% tax relief on the money you put into them. The only similar tax efficient wrapper is a stocks and shares ISA, but these have an annual contribution limit of £20,000 per year. The annual limit for tax relief on pension contributions is £40,000.
Accessing your money
Rules introduced in April 2015 mean you can access and use your pension pot a lot more flexibly from the age of 55. There is a lot to consider when trying to ascertain which option or combination will provide you and any dependants with a reliable and tax-efficient income throughout your retirement.
Be sure to get financial advice to ensure you understand your options.
Is a SIPP right for me?
You should only consider opening a Sipp if you have the experience of investing and are completely comfortable making your own decisions. Some investments that you can place in a Sipp are risky and may not be suitable for you. It’s always worth seeking independent financial advice before deciding about investing money. If you don’t have experience, a stakeholder or personal pension may be more suitable for you. 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. There are always options, and you should talk to a financial adviser if you are thinking of investing.
At outsourced acc we work closely with our trusted financial advisors to ensure you are invested correctly and your retirement objective is considered when making all your financial and tax goals. Give us a ring today to see how we can help you.
Written by Andrew Callister