Self Invested Personal Pensions (SIPP) are popular with retirement savers who want to take control of their investments. UK personal pensions limit the choice of investments to a list of approved funds looked after for the saver by a professional manager.
With a SIPP, the saver can opt for managed funds or take full control by choosing their own investments. These can be funds, stocks and shares, bonds and many other options, such as exchange traded funds (ETF), currency and commodities.
Like other pensions, SIPP savings receive contribution top-up tax relief up to 45%, while the pot grows free of capital gains tax.
Drawing money from a SIPP
When the retirement saver reaches 55 years old, they can choose to leave the money invested or access their cash. The fund pays a 25% tax-free lump sum, but other payments may be subject to income tax. How much a saver can take depends on the value of their fund on the day the money is withdrawn.
Modern SIPP pensions let the saver manage their pension assets themselves or through a professional manager. Just like other personal pensions, the value of the fund depends on the performance of the investments and does not provide any guaranteed income. An advantage of having a SIPP will allow the passing of unspent savings to beneficiaries when retirement saver dies.
How to open a SIPP pension
Many providers offer SIPP pensions. The points to consider are how much fees and other charges are payable to the provider. The charges can include a set-up cost, share dealing costs and annual management fees. Opening a SIPP is easy – either take advice from a professional IFA or contact a provider direct.
The provider will want to check your identity and make sure you understand the investment risk. Funds can be transferred in from other pensions, but not the state pension or public or civil service schemes.
Contributions can be when you like – monthly or regular lump sums. Like other personal pensions, SIPPs are subject to the lifetime allowance which limits fund size to £1 million. Annual contributions cannot exceed £40,000. Pension rules do change now and then, so make sure you check the terms and conditions before signing up for a SIPP pension.