Time to SIPP into Financial Freedom?

Take control of your retirement savings

3 mins

A Self-Invested Personal Pension (SIPP) is more than just a pension. It’s a means of saving for your retirement which offers a great degree of personal control.

With a SIPP, you are at the helm of your investment decisions, determining how your money is invested and how your pension pot grows.

There’s no ‘right’ age to start saving for a pension, but starting early allows your money more time to grow. Whether you make regular contributions or occasional lump-sum deposits, even a modest start can significantly impact your retirement nest egg.

Tax relief

SIPPs are normally accessible to anyone under the age of 75, and come with the bonus of tax relief, matching that of other pensions.

In most cases, you can contribute up to £60,000 a year of your earnings tax-free (less any employer contributions).

You will receive tax relief at the highest rate of income tax that you pay, however, in some cases, for example if you pay income tax above the basic rate, you may need to claim additional tax relief on pension contributions yourself.

If a basic rate taxpayer made an £8,000 contribution into their SIPP they would receive a £2,000 top-up from the government in the form of tax relief.

If you’re a higher rate taxpayer, you can claim up to 40% and if you are an additional rate taxpayer you can claim up to 45% in tax relief on any contributions you make. NB - In Scotland, income tax is banded differently, meaning starter and basic rate taxpayers get 20% tax relief, higher rate taxpayers can claim 41%, and top-rate taxpayers can claim 45% tax relief.

This means that your money can grow more efficiently and potentially provide a larger nest egg for your retirement.

Even without an income, you can contribute up to £2,880 each tax year and still qualify for tax relief.

For parents, a Junior SIPP offers a way to start investing in your child’s future.

However, remember that your specific tax situation will depend on your circumstances and may be subject to pension and tax law changes.

Investment options

Investing in a SIPP means securing your funds until you reach a certain age – currently 55 but set to increase to 57 from 2028 onwards. This is an essential factor to consider before opting for a SIPP either for yourself or your child.

Each scheme comes with its’ own set of rules and investment opportunities, offering a great degree of personal choice and flexibility over how and where you invest your savings, something that may not be possible with an employer’s pension scheme.

They offer a broad selection of investment options, including company shares (UK and overseas), collective investments like Open-Ended Investment Companies (OEICs), unit trusts, investment trusts, property, and land. NB residential property is excluded.

You can also choose how to reinvest dividends, which could accelerate the growth of your SIPP pension pot.

It should be noted that while your employer may contribute to your SIPP, there’s no legal obligation for them to do so.

SIPPS can provide a great opportunity for those who have investment experience and want to make their own decisions. However, if you are unsure about how to proceed it would be wise to seek advice to learn more about how a SIPP could fit into your retirement plans and to navigate the complexities of pension investment.

Understanding your pension options is vital to planning for a comfortable retirement. Seek advice if you are uncertain about any aspect of your retirement planning.

Please note: This content is for general information only and does not constitute advice. The information is aimed at retail clients only.

The content of this article was accurate at the time of writing. Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may impact on the accuracy of the article.

This information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change and tax implications will be based on your individual circumstances.

The value of your investment(s) and the income derived from it, can go down as well as up and you may not get back the full amount you invested.