What is a SIPP?

A SIPP (Self-invested Personal Pension) is a pension fund for which you as the fund holder are fully responsible for all investment decisions. These schemes are approved by HMRC (Her Majesty’s Revenue and Customs) and are one of the major types of personal pension plans available to individuals.

What Are Their Advantages?

Essentially, you decide what your fund will buy and sell and when. Although the SIPP has to be administered by an authorised provider, you as the fund holder make the decisions, so you are not paying expensive fees for “experts” to make them for you.

How Do They Work?

These pension plans can be used to get tax relief on a full range of investments, such as bonds, pooled funds and investment trusts, bank deposits, commercial property, Exchange Traded Funds, foreign currency and Open Ended Investment Companies. They work is the same way as any other pension fund, which means that anyone can get tax relief (at basic rate) on all deposits into a SIPP. So if you pay in 160, your fund will be boosted by 200 (although, as with any other fund, there are costs related to administration).

Higher-rate tax payers can, subject to certain limits, gain more relief from their payments and must include this when they do their tax returns. SIPP holders can elect to take a quarter of their fund as a tax-free sum when they reach the age of 55.

Who Can Open a SIPP?

The simple answer is anyone. And, as with every other type of pension provision, the sooner you do so, the better. Someone starting to save into any kind of pension, including a SIPP, will be able to build up a larger fund at a lower cost if they start saving in their twenties rather than in their fifties.

The Downsides

As with any investment, your fund can go up and down in value. But the real difference with SIPPs is that you are responsible for all decisions related to it. If you take an interest in the money markets and keep abreast of stocks and shares, then this kind of investment could be ideal. However, if you prefer to leave these kinds of decisions to financial experts and have no interest in the nuances of the financial world, then a SIPP is probably not for you.