SIPP: Self-invested Personal Pension

SIPPS: At a Glance

Self-invested personal pensions (SIPPs) offer a flexible approach to pension schemes, enabling complete control over how your pension is invested, and more choices as to how you use your pension in retirement.

  • Wider investment choice with access to 1000s of funds, shares and trusts
  • Greater flexibility, control and access to your pension
  • Available in annuity or drawdown
  • Greater opportunity to make better returns, though at greater risk

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  • What is a SIPP?
  • Why Choose a SIPP
  • Tax Benefits

What is a SIPP?

A SIPP pension offers greater control of how, when and where your money is invested, enabling you to make informed decisions that will affect how your pension pot performs throughout your lifetime.

SIPPs are available to anyone under the age of 75 and offer the same tax benefits as other pensions. Any contributions you make, up to the amount of your earning, receive basic rate tax relief at 20%. So for every £1000 that you pay into your SIPP, the Government will contribute a further £200.

Using Your SIPP in Retirement

Once you reach the age of 55 new regulations allow you to access your pension and make decisions about how to use the accumulated funds to provide an income. Up to 25% can be taken immediately tax-free as a lump sum, and you can also make choices on how your pension will provide for you through income withdrawal or through the purchase of an annuity.

What are the key features of a SIPP?

Investors choose to either start a SIPP over other pensions, or transfer their existing pension, for the following reasons:

  • They want to build up a pension fund in a tax- efficient way
  • Want broader, more flexible investment opportunities for their money, and understand that there is more risk as growth is not guaranteed
  • Are ready to make a commitment that will tie up their investments until the age of 55
  • Require greater flexibility with the pension income options at 55, and may want to make use of the 25% tax-free lump sum available.
  • Want to transfer an existing pension to a SIPP to make use of the benefits listed above.

What are the Tax benefits?

Personal contributions can be paid into your SIPP, or paid in by another person on your behalf without any effect on the tax benefits. An employer can also pay contributions into your SIPP. When you reach the age of 75 contributions can no longer be paid by you, though your employer may still contribute.

Tax relief is available on contributions paid by you, or on your behalf, up to 100% of your UK earnings. All personal contributions are payable net of basic rate tax (20%), which can be reclaimed from HMRC and credited to your SIPP cash account once received.

The tax relief level is set so that it equates to the amount you have paid in income tax. This effectively means that you can contribute up to 100% of your earnings, or a maximum of £40,000 as set out in the annual limit for 2015/16.