A Self-Invested Personal Pension (SIPP) is often a great vehicle to choose when saving for retirement. Being one of the most tax-efficient ways of saving for your retirement years it also provides the freedom to invest almost anywhere you like. SIPPs are different to a traditional pension as rather than limiting your investment options, it gives you more choice when choosing how to invest your money.
Take control of your retirement money and financial investing
The amount that you are personally allowed to pay into your SIPP is based on your annual income. Investors, who contribute to a SIPP benefit from tax relief at 20% in the UK. Therefore, those who say, invest £8,000 towards their Personal Pension are awarded £2,000 from the Government. Whilst further tax relief via self-assessment is given to individuals who pay tax at 40% or 45%. There is an overall annual allowance of £40,000 each year for the majority of people on contributions from all sources. The lifetime allowance for the tax year 2020/2021 applies to the total value of an investor’s pensions. When the value exceeds the lifetime allowance then the excess is subject to a tax charge known as the lifetime allowance charge.
Tax-efficient ways of saving for your retirement
Access to your money in a SIPP is unavailable until the age of 55, thus removing any temptation of dipping into your retirement fund earlier. Once you reach 55 you have the option of managing your pension and to take a percentage of your pension pot as a tax-free lump sum. Any additional money taken is then taxed at your current income tax rate. A Lifetime ISA is similar as it imposes a penalty on withdrawals before the age 60 unless the money is used to purchase your first property or for terminal illness. All ISA withdrawals are tax free whilst in comparison, only 25% of your SIPP can be withdrawn tax free. However, an advantage of using SIPPs for those with relevant UK earnings is that you can pay more money into it annually than you can into any form of ISA and they have less age restriction than Lifetime ISAs. A SIPP will continue to receive tax benefits until you turn 75 years and you may continue paying into this pension.
SIPPs are available to a broad audience, whether you are a self employed, a business owner or purely seeking or flexibility when managing your retirement savings. With the freedom to invest almost anywhere you like, pick your own individual investment and can generally choose from ready-made investment portfolios as well. Your investment choices could include bonds, funds, shares and investment trusts. Those who invest in SIPPs are able to change their investments choices when they see fit and are free to start withdrawing even if you’re not retired yet.
Securing your retirement and pension planning
With the freedom and flexibility of a SIPP comes more responsibility and risk. Therefore, regularly reviewal of your investment performance is good practice and seeking guidance is advisable. Capital Associates financial experts are happy to discuss if a SIPP is the right pension plan for you. Contact our team for bespoke financial solutions and wealth management.