March 18, 2024
We’ve recently had a few questions about SIPPs, so it seemed like a good time to clear up some of the confusion around what they are and whether they differ to other types of pension.
SIPP refers to a type of pension that gives you a greater degree of control over your investments compared to more traditional pension arrangements, like that offered by your employer for instance.
Not all SIPPs are equal though – some will offer a wider range of investments than others. Of course, you may not want to make your own investment decisions, and some SIPPs offer ready-made options that might be suitable. In that case, you might want to reconsider whether a SIPP is really the best vehicle for you and see if a simpler (potentially cheaper) pension can do the job just as well.
In either case, you can choose to make regular contributions or occasional lump-sum deposits.
You could choose to have a SIPP instead of a workplace pension, but you will almost certainly forfeit the extra contributions paid by your employer which can be extremely valuable.
Yes, SIPPs come with the same tax benefits as other pensions. For example, if you contribute £8,000, the SIPP provider will add £2,000 of tax relief from the government. If you pay tax at the higher or additional rates, you can claim further tax relief via self assessment.
In most cases, you can contribute up to 100% of your earned income, subject to an annual allowance of £60,000 each tax year. This includes employer contributions. This is actually quite a complex topic so getting good advice is really important here.
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.
SIPPs are normally accessible to anyone under the age of 75. Even without an income, you can contribute up to £2,880 each tax year and still qualify for tax relief. As with any pension, the earlier you can start paying into a SIPP, the more opportunity your money has to grow before you access it.
Yes, if you are a parent, a Junior SIPP offers a way to start investing in your child’s future. Remember, though, your child will only be able to access the funds once they reach the minimum age – again, 55 now, rising to 57 in 2028. So if your intention is to provide them with a lump sum to help them earlier in life, you need to consider a different option – such as a Junior ISA (JISA).
The simple answer is, yes, probably. But you need to bear in mind that there may be penalties for taking money out of your existing pension, which might mean that you’re better off leaving that money where it is, and starting a SIPP with new contributions.
Sadly not. It’s important to remember that, as with any investment vehicle, the value of a SIPP can go down as well as up, and you may not get back the amount you invested. However, viewing it as a long-term investment gives it the greatest potential to grow.
A key difference between SIPPs and other types of pension is the wider availability of investments, but it can also be tempting to stray into assets you don’t fully understand. Again, getting independent advice is vital here.
Whatever type of pension or investment you are interested in, and whatever your level of investment knowledge, an experienced IFA can help you to navigate the financial world with greater confidence, guiding you towards the decisions that will set you on the path to a more secure financial future.
To talk to a Talis IFA to explore what kind of pension would be most appropriate for you, find an IFA here.
This article does not constitute tax or legal advice and should not be relied upon as such. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age).
The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits.
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