Self-Invested Personal Pensions (SIPPs)

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Saving for your retirement is one of the longest and biggest financial commitments you will ever make. Imagine you are retiring today. Have you thought about how you are going to financially support yourself, and potentially your family too, with your current pension savings? If appropriate to your situation a Self-Invested Personal Pension (SIPP) could be an option to consider.

How do I know if a SIPP is right for me?

A SIPP could be right for you if you are looking for a wider choice of investment options and have sufficient knowledge and experience of investing to make your own investment decisions or have a trusted adviser to help you make these decisions.

A SIPP provides a range and flexibility of investment options that make it one of the most flexible methods of saving for retirement. You can invest money into your SIPP up until you reach age 75, and start withdrawing money from it as early as age 55 (57 from 2028).

As with all defined contribution schemes, the amount that you will have available when you retire depends on the contributions that you, and any employers, have made and how your investments perform over time.

If appropriate, almost anyone under the age of 75 in the UK could open and make tax-relievable contributions into a SIPP. Parents can even open a Junior SIPP for their children. SIPPs are not suitable for every investor and other types of pensions may be more appropriate.

As with all pensions, SIPPs provide favourable tax treatment. Once in a SIPP wrapper, your savings will grow free from UK income tax and capital gains tax.

Do the same tax and contribution rules apply to a SIPP as other pensions?

A SIPP enables you to save and grow your money so that you can see your retirement dreams come to life. They are governed by the same tax and contribution rules as other pensions. Anyone living in the UK who pays into a SIPP is eligible to claim pension tax relief, including low-income earners.

Tax relief is paid on your pension contributions at the highest rate of income tax you pay. Basic rate taxpayers receive 20% pension tax relief. Higher rate taxpayers can claim 40% pension tax relief and additional rate taxpayers can claim 45% pension tax relief.

In Scotland, income tax is banded differently, and pension tax relief is applied in a slightly different way. Starter rate taxpayers pay 19% income tax but get 20% pension tax relief. Basic rate taxpayers pay 20% income tax and get 20% pension tax relief. Intermediate rate taxpayers pay 21% income tax and can claim 21% pension tax relief. Higher rate taxpayers pay 41% income tax and can claim 41% pension tax relief. Top rate taxpayers pay 46% income tax and can claim 46% pension tax relief.

A Lifetime Allowance applies to the total of all the pensions you have, including the value of pensions promised through any defined benefit schemes you belong to, but excluding your state pension. Find out more about the Lifetime Allowance.

Is tax relief on a SIPP subject to the Annual Allowance?

You may contribute up to the value of your earned income to a pension in any tax year. This is subject to the Annual Allowance, which is currently £40,000 for the tax year 2021/22. If your earnings are over £200,000 you may have a reduced Annual Allowance, referred to as the Tapered Annual Allowance.

Find out more about the Annual Allowance.

Should I consider consolidating my pensions into one SIPP plan?

During your working life you may have built up pension pots with several employers. This can often make it hard to keep track of them all and manage them well. For simplicity, it may make sense to consolidate your pensions into one plan.

Modern flexible pension plans offer benefits that older plans do not, for example, flexi-access drawdown of your pension, or access to an income for your loved ones on your death.

Having several pension plans may mean you have more paperwork to keep track of. You may also have a range of different investments that you will need to review and make decisions about. If you have a few pension plans, including some older ones that you may not have checked for some time, it is a good idea to review the charges. Higher charges can eat away at any investment returns.

There is no guarantee you will be better off as a result of transferring, so you should take professional financial advice before you move a pension plan, to make sure you understand all the implications.

What flexibility at retirement do I have to take money from my SIPP?

You can normally take money from your SIPP when you reach age 55 (increasing to 57 from 2028). When and how you take your money can make a big difference to how much tax you might pay and how long your money will last.

There are different ways you can take money from your SIPP. Keep in mind that you can choose one option or a combination of options. You can read more about the various methods of withdrawing from your pension in our Pension Withdrawal knowledge article.

Can I use my SIPP as partial security against a loan to borrow money?

SIPP lending or borrowing is when your SIPP is used as partial security against a loan to borrow more money and increase its investment capacity. There are numerous rules around SIPP lending and you should take professional financial advice if you are considering this option.