An overview of SIPPs, their benefits and what you can invest in
A SIPP, or Self-Invested Personal Pension, is a pension which gives you the freedom to manage and choose how your retirement savings are invested.
SIPPs are sometimes referred to as DIY pensions and, if you want to take closer control of your pension, they can provide easy access and flexibility to allow you to change your investments online whenever you like. Indeed, many online SIPP dealing accounts have the added convenience of sitting alongside your other investment accounts, such as your Stocks & Shares ISA.
You can have a SIPP in addition to a workplace or government pension, giving you an extra boost throughout retirement. A SIPP can also be a good solution if you want to consolidate a number of separate pension pots into one place, particularly before retirement so you can actively manage your pensions.
In a SIPP, you can invest in a wide range of asset classes, regions and sectors, allowing you to diversify your pension investments. You can invest in:
Your chosen SIPP provider can also potentially help you with other SIPP-eligible investments, such as commercial property. You can invest into your SIPP as and when you choose, or you can set up monthly regular investments.
The UK Government will provide 20% tax relief on all contributions into your SIPP up to £40,000 per annum.
For example, if you put £1000 into your SIPP, the government will add an additional £250 in tax relief.
If you’re a higher or top-rate taxpayer, you can claim back up to a further 25% on your tax return. Scottish taxpayers can claim back up to an additional 26% on their tax return, potentially bringing their total tax relief to 46%.
As with other pensions, you can pay up to £40,000 into your SIPP each year. This is known as your ‘annual allowance’.
If you have not used your annual SIPP allowance for the past three tax years, you’re able to carry forward any unused allowance. That means you can invest up to £120,000 in a year. It’s important to bear in mind that in order to receive tax relief, you’ll be unable to contribute more in to your pension than you earn each year.
Even if you don’t pay tax, a SIPP might still work for you. You can still invest in a SIPP by saving up to £2,880 a year: after taking the government’s 20% tax relief into consideration that equates to £3,600 per annum in your pension pot.
As well as a yearly allowance, there are also lifetime allowances levied on SIPPs. The total amount of money you can pay into a pension and still receive tax relief is currently £1.03m. The standard lifetime allowance is inflation linked, so it's likely to increase each year.
You can take money from your pension as soon as you hit 55. You’ll be entitled to a maximum tax-free sum of up to 25% of the value of your pension, with the remaining funds paid to you like a wage.
Other than the 25% tax-free sum, your pension income is taxed when you withdraw money from it.
There are two types of SIPPs you can open with Selftrade. The Selftrade SIPP is a complete service that includes administration and trustee services provided by Gaudi Regulated Services Ltd, Selftrade’s partner. The annual administration fee is a low £118.80.
The other option is to choose a provider, from our panel of over 70 SIPP providers. Annual administration fees for our SIPP Panel Partners typically start at around £200 per year.
Selftrade also charge a low quarterly custody fee of £17.49 for assets held in a SIPP, which can be offset by online dealing commission fees. Full pricing details can be found here.
A SIPP is managed by you, and you can view it at any time to see how your investments are performing. You have full control of how your pension pot is invested, allowing you to tailor your pension portfolio to your needs and investment preferences.
In a SIPP, you can invest in a wide range of asset classes, regions and sectors, allowing you to diversify your pension investments, whilst taking into account where other investments sit in your wider portfolio. SIPPs are easy to manage, and if you’ve had a change in your circumstances or simply a change of heart, you can alter your investments whenever you like.
Having your investments all in one place not only make investing simpler, but it will prevent you from paying fees to multiple providers, in turn saving you money. The Selftrade SIPP has a low, annual administration fee of £118.80, meaning your fees don’t increase as your investments do.