Self-Invested Personal Pension

Self-Invested Personal Pension

by David Redmond on 11 Aug, 2011

Wondering how best to save for retirement? One relatively recent form of pension is the Self-Invested Personal Pension (SIPP) that has become very popular amongst finance advisers.

Broadly speaking, a SIPP does exactly what the name suggests. Rather than investing in a personal pension or stakeholder pension when the fund managers look after how your money is invested, you take control of where your money goes (how much control you get depends on which provider you go with and with plan you take out).

For safety’s sake, many SIPP providers always ensure that a proportion of your investment is kept in insured pension funds, but the remainder is left for you to invest as you please. However, there are certain tax restrictions as dictated by the HMRC.

The SIPP is essentially a tax relief scheme designed to make it easier to invest for retirement. As with all tax relief schemes there are certain conditions that have to be met in order to receive the full tax relief (in this case a 20% kickback on all contributions you make to the fund and all income from investments being tax free – higher rate taxpayers must apply for further tax relief via their tax return).

You can invest in any assets you like using the SIPP, but some investments may attract tax, while other, pre-defined commodities will be tax free. Part of the function of the pension plan provider is to ensure that your investments meet tax requirements at all times to maximise your investments. Depending on the plan this may extend to managing all or a portion of your fund for you.

SIPP’s aren’t for everyone. Although they offer an excellent way of building up a retirement fund with a high degree of control, they do require constant monitoring as a consequence. Many people would be much happier just making regular contributions into a stakeholder pension plan and forgetting about it until retirement.

However, with the state pension looking increasingly impractical as a sole source of retirement income, and life expectancies on the rise, taking an interest in how your money is growing for retirement is probably a good thing.

About the Author

David Redmond

David Redmond is a Partner of Don Gilliard Finance Group. He is a fee-only, independent financial advisor and financial planner. For over 15 years, he has been helping individual investors and their families realize their investment goals.