A SIPP, or a self-invested pension plan, is a type of retirement fund that allows you to manage your own investments. Having a SIPP means you can customise your pension to your own personal needs and interests, while also potentially increasing returns.

SIPPs can offer much wider investment opportunities than typical pension plans, allowing you to invest in…

  • company shares (UK and overseas)
  • collective investments
  • investment trusts
  • property and land – barring most residential properties

There are plenty of other opportunities available to investors, too. Your SIPP provider will likely have their own unique list of investment opportunities for you to check out.

Is a SIPP right for you?

Anyone under the age of 75 in the UK can start a SIPP but it’s best left to those who can handle managing their own financial assets or have access to a financial adviser.. A SIPP is often used alongside a workplace scheme to create additional pension savings, or used as a way of consolidating schemes that were left behind from previous employment.

It is also common for self-employed individuals to use a SIPP as they don’t have an employer-funded scheme.

If you’re self-employed and are aware of the associated risks then this may be a good option for you as you don’t miss out on the benefit of employer contributions and may be able to grow your investments with good investment management.

The benefits

Now we know what a SIPP is and if it might be the right choice for you, let’s get into why investing in a SIPP is a good choice.

  • You have complete flexibility over when and how much you invest.
  • You have control over what investment vehicles you use.
  • You earn returns based on your investment risk level.
  • It’s a tax-efficient option as the government will match your savings with pension relief.
  • They’re versatile investment vehicles as they’re able to hold a range of defined assets.
  • Your savings and investments will continue to grow and you can even keep contributing to the fund until you’re 75!
  • SIPPs give you significant tax advantages on your savings with a guaranteed 20% tax bonus and higher taxpayers getting 25% deductible tax relief on pension contributions.
  • You can withdraw up to 25% of your SIPP fund tax-free and you have a few options for how you’d like to receive pension payouts:
      • Regular income withdrawal
      • Buying an annuity
      • Taking out a series of lump sums
  • Can’t access the funds until later in life so you’re setting yourself up with security.

If you’re specifically looking to invest in property with your SIPP then there are a few advantages to that too…

  • Potentially strong capital growth – yields can even be higher than dividends from funds or equities.
  • Capital gain from increased property value is exempt from capital gains tax.
  • Rental income is also tax-exempt as it’s reinvested in the SIPP.
  • Companies purchasing commercial property through a SIPP can potentially generate capital.

If you’ve decided that a SIPP is the right pension plan for you, there are a lot of wonderful benefits to enjoy from this high-risk, high-reward venture.

The drawbacks

We’ve already stated multiple times that this investment doesn’t come without a significant level of risk. Here’s everything you need to be aware of if you’re considering a SIPP:

  • There may be additional costs, such as…
      • set-up charges
      • ongoing charges for the investments
      • platform or service charges for the administration of your pension
      • annual administration charges (this may be included in investment charges for some providers)
      • dealing fees for investing
  • When it comes to property, lost deals can end up costing more than if a SIPP wasn’t involved.
  • Renting properties under a SIPP can be profitable but if payments are missed or the tenant moves out then you may have to cover the lost capital yourself or sell the property

You have to consider whether you’re willing to accept these risks before definitively deciding to invest in a SIPP.

Conclusion

If done right, SIPPs can be hugely profitable investments that set you up nicely for your retirement.

If you’re not sure about your pension plan or want to discuss whether SIPPs are right for you, then please don’t hesitate to get in touch with our wonderful team of expert financial advisors – we’re always happy to help!

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