8 reasons to invest in a SIPP

06 April 2023

3 minute read

The self-invested personal pension (SIPP) is one way of boosting your retirement savings

Who’s this for? All investors

The value of investments can fall as well as rise and you could get back less than you invest. If you’re unsure whether to transfer a pension or not sure about investing, seek professional independent advice.

If you’re in any doubt about the suitability of a SIPP for you, or about the impact of paying money into your pension, you should seek financial or tax advice. Please bear in mind that tax and pensions laws can change and that their effects on you will depend on your individual circumstances. We don’t offer personal advice.

Managing your own pension investments isn’t right for everyone – you need to be satisfied that you have the necessary skill and experience to make the key decisions about your objectives and plans for retirement.

What you’ll learn:

  • How a SIPP can be tax-efficient
  • SIPPS allow you to stay in control of your investment decisions 
  • Why using a SIPP could benefit the self-employed.

Being engaged with your pension pot is paramount to ensuring you have enough money for a secure future.

The self-invested personal pension (SIPP) is one way of boosting your retirement savings.

It is a tax-efficient pension pot inside which investors can place a portfolio of investments.

Here are 8 reasons why a SIPP can be a powerful tool for retirement saving and wider financial planning.

1. Tax efficiency

A SIPP offers tax relief on contributions. All taxpayers get 20% paid by HMRC to the pension and if you pay income tax at a higher or additional rate you can claim relief from HMRC on your self-assessment tax return.

Up to £60,000 a year can be put into a pension. If you go over the limit you won’t get tax relief on further pension contributions.

The money invested in your SIPP grows free of capital gains tax and income tax.

Under current rules, at the age of 55 you can take up to 25% out of your total fund, without paying a single penny in tax. The minimum age is rising to 57 in 2028.

2. Wide choice of investments

SIPPs offer access to a large range of investment funds. You can choose from more than 2,000 funds and Exchange Traded Funds (ETFs), investment trusts and shares via a Smart Investor SIPP.

3. Control of your investment strategy

You have complete freedom to choose how and where your SIPP money is invested within the options available.

Your investment choices can be changed at any time, so that your SIPP always reflects your own risk horizon and goals. This is useful because throughout life attitude to risk can change. For example, in the run up to retirement you are likely to want to consider shifting a large portion of your pot into less risky investments.

4. Designed for all ages – up to 75

The earlier you start saving, the better. And while money saved into a SIPP cannot currently be accessed until you reach age 55 (57 from 2028), you can continue paying into an account until age 75. If you stop working you can continue to make contributions into your SIPP – and benefit from tax relief.

Even a baby can have a pension. Currently up to £2,880 can be put into a pension (a Junior SIPP) for under 18s each year to which HMRC adds £720, making a useful £3,600.

5. SIPPS accept transfers

You can either start your SIPP from scratch with money that hasn't been held in a pension, or you can use it as a new home for other pension schemes you hold elsewhere. SIPPs allow you to transfer in from other schemes – private and workplace – so you can have all your retirement savings in one place.

However, it’s important to check that you’re not giving up any valuable guarantees or benefits attached to pension schemes by moving the money. It’s also crucial to consider any difference in annual charges before taking any action.

6. Tax savings for self-employed

The self-employed are entitled to all the same tax reliefs on pension contributions as employed people. Without a workplace pension scheme in place, a SIPP can help to build a pension pot for the future and save on annual tax bills.

7. Flexibility at retirement

SIPPs allow you to convert your pension into an income drawdown account, currently from the age of 55 (57 from 2028), which allows you to take as little or as much as you wish as a one-off sum or regular income – while the rest remains invested.

8. Tax-efficient passing on of wealth

When you die your SIPP can be left to any beneficiary (or number of beneficiaries) that you choose, free of inheritance tax.

Ready to explore a SIPP?

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