What do you know about your pension? Is it a mystical pot that was put in place by your employer or do you carefully track its progress? Whichever side of the spectrum you fall, pensions are simply another investment vehicle that can be utilised for your benefit. Through sharing a bit of knowledge however, we hope to bring awareness to some of the options available to you and how to make the most out of your investments. Have no idea what is a SIPP pension? Read on to understand the basics.
What is a SIPP pension?
A SIPP is a self-invested personal pension and like all pensions its purpose is to build a sum of money that can provide an income during retirement. A SIPP can be used to compliment a state pension and also a workplace pension, or even replacing it if required. In basic terms it provides simple and flexible opportunities to save for your retirement.
SIPP pensions have been around since 1990 but their journey has not been all plain sailing. Early adopters faced complications through how SIPP providers were forced to operate. However, the process has evolved and SIPPs have been regulated by the FCA since 2007. Today there are a large number of SIPP providers offering a growing number of products. To understand more about the benefits and features of SIPPs, lets take a look at 8 key points.
- DIY Pension Pot
The big selling point for SIPP pensions is the level of control you have over your investments. You have the option to choose how your money is being invested. The level of return and therefore also the level of risk can be managed by yourself, giving you greater options over the performance of your money.
SIPPs provide the opportunity to invest in a wide variety of assets. SIPPs can be used to invest in stocks and shares to own a direct stake in a business, investment trusts and funds to spread the investment or corporate and government bonds. In the world of investing, diversification offers security and longevity.
- Tax Efficiency
As with other pensions, the tax advantages are a main attraction. Investments within the SIPP will be tax free and in addition the government will give you a tax bonus. Savings can also be transferred to your heirs upon death without incurring tax. However, conditions do apply with regards to your age at the time and if you have designated beneficiaries.
- Additional Savings
If you pay into a workplace pension scheme but have reached the limit of your payments, SIPPs present an opportunity to make additional payments towards your retirement fund. The flexibility of SIPPs allow you to make both regular and one-off payments to have control over your investment pot.
- Inside or outside your comfort zone
The additional level of control you will have over your investments can result in good investments but also bad investments. The full control of a SIPP will generally suit investors who have some experience and are comfortable with that level of responsibility. However, providers now offer platforms to help with the process. The platform will still need to be your choice but it can take away some of the time commitment.
SIPP pensions will include their own charges which will vary depending on the level of sophistication of the investments, the level of advice provided or the platform used. Fees can be charged either as a fixed admin charge or as a percentage of the transaction. Some providers will charge admin fees alongside additional fees so it is worth understanding the costs fully before investing.
If you have funds in a number of separate pension schemes, perhaps form workplace pensions, a SIPP can be used to consolidate you investments into one place. Bringing your pension savings into one plan can simplify your investments and make it easier to manage your money.
As with any investment it is important to get qualified financial advice. With so many options available for investing your money, choosing the most efficient vehicle will be unique to each individual. Your own requirements and plans for the future will determine the options that most suit your needs and a good financial advisor will be able to formulate a structure with you that gets the most out of your money.
SIPPs are a tool, like any other tool, that may or may not need meet your requirements. Hopefully we have introduced the main answers to ‘what is a SIPP pension’ and given you an idea of how they work. Perhaps a different pension strategy will be a more beneficial option for you. We aim to simply shed a little light for you to understand some of the choices that are out there.
If you have not done so already, consider having a financial advisor in your power team. They will be a great asset, especially when building a strategy around property investing. For our Advanced Programme members, we bring in guest speakers to offer insider perspectives on a wide range of subjects including pensions, so keep an eye out for our live events once you have enrolled on the programme.