Can SIPPs help bolster your pension pot?

A self-invested personal pension (SIPP) is a government-approved scheme that enables the owner to make investment decisions regarding their pension pot, instead of putting this in the hands of others.

Not only does it give the investor complete control over their money, it allows them to benefit from tax breaks. Therefore, you could find SIPPs are ideal at boosting your retirement fund.

How do they work?

SIPPs are pension ‘wrappers’ that hold your investments – approved by HMRC – until you retire. They allow investors to have control over their financial decisions by choosing when to buy or sell according to the agreement of SIPP trustees.

Who are these useful for?

 SIPPs are ideal for those who have experience in investing and are confident in making important decisions about their finances.

They also often come with high charges and it can involve a lot of time researching options to make the most of your pension pot, which is why professional or experienced investors, or those with large funds are best suited to SIPPs.

What are the benefits of SIPPs?

 There are numerous benefits of having a SIPP over a traditional personal pension fund, including:

  • Flexibility and control – Being able to manage investments yourself instead of leaving it in the hands of pension companies.
  • Tax relief – Investors can reclaim income tax on their contributions of up to £40,000 per annum in 2015/16. This is particularly beneficial to those in the higher tax brackets who have to pay as much as 40% or 45% tax on their earnings (if they have a salary of over £31,785 and £150,000 respectively).
  • Other people can contribute – Your SIPP can receive contributions from your employer, relative or spouse to boost your pension pot even further.
  • Access from 55 – You can access your pension from 55, allowing you to have the choice of early retirement if you want.

The drawbacks

However, there are also some disadvantages of setting up a SIPP, namely there are several charges associated with them. You will have to pay a set-up fee of up to £500, an annual management fee, dealing charges, exit or transfer fees, and something if you want to drawdown on your SIPP.

There are also some assets you cannot invest in, including residential property, so it is important to check the list of potential investment products thoroughly.

What you can invest in

Here are some things you can invest in, depending on each SIPP provider:

  • Individual stocks and shares
  • Government securities
  • Unit trusts
  • Commercial property
  • Insurance company funds
  • Investment trusts

What other types of pension options are available?

Choosing how to save for your retirement can be difficult as there are a variety of pension schemes available, from defined contribution pension schemes to NEST pensions. To find out more, visit The Money Advice Service or talk to a financial adviser and start saving for your golden years straight away.

Sign up to our newsletter and never miss out on deals and offers to help your business