So what’s a SIPP? Here’s everything you need to know about SIPPS explained without the jargon
Let’s start with a definition
SIPP is short for Self Invested Personal Pension.
So if that’s what SIPP is short for, then what actually IS a SIPP?
A SIPP is a pension contract that is in your name. Within certain rules set out by HMRC, you can decide how the SIPP is invested. So essentially, it’s a pension in your name that you can control.
Funding SIPPS explained
A SIPP can be set up with funds from an existing pension scheme, by making contributions from your income, by your employer, or any combination of the above. There is a limit on how much you can put into a SIPP. The limit is per tax year (6 April to 5 April) and is up to 100% of your earnings subject to a maximum of £50,000.
Carry forward of SIPPS contribution allowances
From 6 April 2011 you can carry forward SIPPS contributions that you don’t make for up to 3 years. What does this mean? Let’s say that you didn’t put any money into a pension (not just SIPPS – any pensions you have) in 2008/09, 2009/10 or 2010/11, in 2011/12 (ie now) you could contribute up to £200,000.
Tax relief on SIPPS contributions explained
From 6 April 2011 you get tax relief (ie your SIPPS contributions are deducted from your income before working out how much tax you pay) at your highest rate of Income Tax, so you could be saving at up to 50%.
Who are SIPPS for?
Pretty much anybody can start a SIPP, other than very rare circumstances if you are a UK resident and under age 75 you can have a SIPP.
What if I have other pensions?
It doesn’t matter, other than the limits on contributions mentioned earlier, there is nothing to stop you having several pensions including a SIPP. Note: Our free guide “SIPPS Explained” has a fantastic tip for funding your SIPP without affecting your contribution limits. Make sure you get a copy.
What if my SIPP doesn’t work out so well for me?
If for any reason your SIPP isn’t working for you, then you can move it to another provider, or sell the assets and transfer cash to another scheme. You can’t though take the cash out.
When Can I Receive my Pension?
You can start to draw your pension any time from age 55 onwards. (Note: Our guide “SIPPS Explained” has a sneaky tip to get you 25% of an existing pension in cash within 14 weeks if you are age 55 or older).
Are SIPPS Risky?
All investments carry risk and your SIPP is no different. As you can manage your own investments in a SIPP then this may increase or decrease the risk depending on your level of investment skill.
As an alternative and to reduce the risk, consider investing your SIPP in managed investments, some of which even come with certain performance guarantees. (Our free guide “SIPPS Explained” covers this aspec thoroughly).
Are SIPPS for me?
SIPPS are for you if, you have a frozen pension (ie a pension that you are no longer paying into), or are able as an individual or perhaps with an employer to contribute to a pension fund.
SIPPS are designed to suit a wide range of individuals, so there’s a pretty good chance that there is one out there for you.
Finding out more about SIPPS
This brief article provides an overview, but there is a lot more that you should know before you form an opinion on SIPPS and decide whether to open one. We’ve produced a free “SIPPS Explained” guide that explains much more including:
- the investment trick that can massively increase your pension value in as little as 5 years
- a little known method of receiving up to 25% of your pension fund in cash
- how to avoid the costs of starting a SIPP
- why you should avoid the vast majority of SIPPS information online or risk making financially damaging decisions
To get the SIPPS Explained guide, simply fill in your contact details below and it will be sent to you by post within 24 hours.
