Everything You Need to Know About SIPPs


In recent years, SIPPs have become increasingly popular amongst those looking to the future and planning their retirement. Offering substantial tax benefits and increased flexibility and choice for investors, their appeal isn’t hard to understand for those in the know.

And yet, to many, SIPPs remain a foreign concept. They’ve heard the word mentioned here and there, but they have little understanding of what it actually means.

If it’s time for you to start considering your future, then it’s time to learn about them…

The Beauty of SIPPs: Increased Flexibility and Choice

SIPP stands for Self-Invested Personal Pension, and SIPPs are exactly what they say on the tin, helping to earn them the epithet of the DIY pension. They wrest control over your retirement fund from the government or company you work for, and place it in your hands, giving you control over where your capital is invested.

SIPPs have to be administered by an authorised provider, like www.killik.com, in order to become eligible for all of the tax benefits they endow. However, you are still the one with the ultimate power over what to buy and sell, and when.

Your choice of investments is vast, ranging from bank deposits to shares, bonds, pooled fund, ETFs, commercial property, hedge funds and forex, amongst others.

The Freedom of SIPPs

Although the power is yours, SIPPs still gain tax relief in much the same way as any other pension. Basic rate relief is granted on payments into your fund, meaning that if you were to pay £80 in, you would earn £100 before costs. For high earners, the tax relief can be even greater.

Once you reach the age off 55, you can take 25 per cent of the total worth of your fund, irrespective of its value, as tax-free cash to be spent as you wish.

Perhaps the most attractive benefit of SIPPs is that they can be managed to meet your changing needs. After removing your 25 per cent, it is no longer required that you spend the remaining 75 per cent of your fund on an annuity or guaranteed income for life once you retire. Instead, you can continue to invest as you desire. This means that, if you wanted to, you could continue to hold high-yielding bonds, shares and funds to deliver you an income without being obliged to relinquish control or ownership of your capital.

So when should you start investing? ‘Now’ is the most correct answer; after all, the sooner you make a start, the more time you allow for compound interest to start working in your favour.