What is a SIPP?
A SIPP is a type of UK-government-recognised personal pension
scheme which allows clients and their financial adviser to choose
from a wide range of investments that are approved by HM Revenue
& Customs ( HMRC).
Therefore, a client can freely choose how their money is
How does a SIPP work?
With the help of a financial adviser, a SIPP allows you to
decide what type of investments to invest in depending on your risk
appetite and timeframe until retirement.
Since regulations surrounding UK pensions changed in 2006, you can
pay as much as 100% of your salary into the scheme each tax year,
as long as it does not exceed £40,000 (2013/14). On the other
hand, if you become retired or unemployed you can still continue to
invest in your SIPP with a limit of £3,600 per year.
What are the benefits of a SIPP?
It is essential that you start to plan for your retirement as
early as possible so that you are able to live comfortably in the
knowledge that your lifestyle needs are covered. This will mean
careful consideration of your pension fund throughout your working
A SIPP gives you control of your pension, whereas most members
of a company pension scheme have very little control and almost no
idea where their pension money is invested. Also, with many of the
UK's largest companies closing their final salary schemes to
all members, many members now have to look at taking their pensions
into their own hands.
Indeed, there are many reasons why SIPPs are become increasingly
popular. Some of the key features include:
A SIPP allows the individual along with their financial adviser
to decide on the type of investments depending on their investment
risk profile and timescale to retirement.
A wide range of investments are allowed, including stocks and
shares, unit trusts, investment trusts, OEIC's, insurance
company funds and even commercial property which allows individuals
to put business premises into the pension fund and the rental
SIPP trustee fees tend to be fairly cheap on an annual basis,
sometimes as low as a few hundred pounds per year. Access to funds
and other collectives or shares is generally available via
platforms or offshore life wrappers, allowing access to a whole
range of assets at lower charges than individuals can achieve.
Many individuals have several small pensions that they often
forget about or are not growing as they should. The National
Association of Pension Funds and the Trades Union Congress believes
that an average UK person changes jobs eleven times during their
career. A SIPP can consolidate all these pensions into one allowing
for easier management and better control.
Members of a SIPP can take income drawdown, meaning that an
income can be taken from the fund (subject to certain limits)
whilst leaving the remainder of the fund to grow in value. An
annuity need not be purchased. The benefits taken each year can
vary depending on your individual circumstances.
The SIPP Administrator will claim basic rate tax-relief for you
if you have any UK earnings. Therefore, if GBP100 are invested, you
(the member) only have to contribute GBP80 and the Administrator
will ensure the UK Government contributes the difference. A higher
rate tax-payer can obtain further relief via the UK Self Assessment