What is a SIPP?
A SIPP is a type of personal pension plan that gives you greater control over how your money is invested.
The SIPP itself is actually a tax-efficient ‘wrapper’, which holds your investments. In many respects a SIPP is the same as other pensions – the contribution limits, tax reliefs, eligibility and the age at which you can start drawing an income are all exactly the same. However, the attraction of SIPPs is the greater flexibility it offers over investment choice.
A wide investment choice – SIPPs give you more choice than other types of pension. You can invest in a broad range of investments – including individual commercial property – and you won’t be restricted to pension funds offered by any single pension provider. In the Barclays Stockbrokers SIPP you can choose from about 2,000 funds from 100 fund managers as well as shares, investment trusts, gilts & bonds and exchange traded funds.
Greater control – With a SIPP you choose and manage your investments yourself. This means SIPPs are most suited to experienced investors. However, some plans do offer investment management, with a specialist making investment decisions for you.
Greater flexibility – Subject to the Annual and Lifetime Allowance, see below for details which affect all pensions, you can choose to make regular contributions or lump sum payments into your SIPP – whatever suits you. Don’t forget that as well as the Annual Allowance, which limits the amount you can put into your pension currently to £40,000 or 100% of earnings(whichever is lower), provided that you have not withdrawn a taxable income from any pension (see Annual Allowance section). There is also a cap on the total value of all your pensions, called the Lifetime Allowance. This is currently £1.25m, but will reduce to £1m from 6 April 2016.
Clear charges – You’ll usually pay a set fee for the SIPP wrapper. On top of that, you’ll pay charges depending on the transactions you carry out, the type of investments you hold, or their value. Your pension provider will set the amount.
How much will I get?
The amount of income your SIPP could provide when you come to retire depends on:
- The amount of money you have paid in
- How well your chosen investment funds have performed, after deducting charges
- The amount that you withdraw as a tax-free lump sum
- If you purchase an annuity, the rates at the point that you purchase it
- Whether you decide to withdraw some of your pension as taxable lump sums using UFPLS, or leave your pension invested and withdraw an income over time.
Is a SIPP right for me?
SIPPs offer a number of attractive benefits, but it’s important to remember that they are generally only suitable for experienced investors who have the time and ability to manage their own investments. You need to be prepared to take a risk as you could lose the money you have invested and you could end up with insufficient savings in retirement. Remember too that the favourable tax treatment associated with SIPPs may change in the future and that the value of this tax treatment to you will depend on your individual circumstances, which can also change.
If you’re an experienced investor and are willing to take a greater risk in the hope of greater returns then a SIPP could be right for you.
- Do you want control over your retirement fund? Either because you want to make your own investment decisions, or you would like to appoint a specialist discretionary or advisory investment manager to do this for you?
- Do you want to select from a wide range of investments for your retirement saving?
- Are you comfortable paying the charge for the SIPP and the investments you hold within this, which may be greater than the charges applied to other pensions, particularly company sponsored schemes where these are often met by the employer?
- Please be aware that tax rules can change and the value of tax relief will depend on your individual circumstances.
- SIPPs are not for everyone. You need to have the necessary skills to invest your own pension fund as the value of investments can fluctuate and you could get back less than you invested.