SIPP: Self-invested Personal Pension

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.