What is a SIPP?

If you’ve been looking into your pension options, you may have come across the term SIPP. It stands for Self-Invested Personal Pension. It’s a bit like a DIY pension and it gives you tax relief on your investments. Unlike a regular personal pension, a SIPP puts you in control of what to invest in. Things like shares, investment trusts, government bonds, or funds.

There are lots of reasons to include a SIPP as part of your retirement planning. But they are best suited to someone with experience of investments, or the time to learn. You could choose to make a single lump-sum investment or you can set up regular payments, whichever is best suited to your needs. You can even ask your employer to make contributions to it.

There is an annual limit on how much you can pay in to get tax relief. Currently, that normally stands at £40,000 or 100% of your yearly earnings – whichever is lower. For a basic rate tax payer, the government will pay 20% tax relief on your contributions. So, if you wanted to make a £40,000 contribution, you’d pay in £32,000 and the tax relief from the government would make up the remaining £8,000. You can currently withdraw 25% of your SIPP as a tax-free lump-sum once you’re 55. The remaining 75% is subject to income tax. But you can choose how much income from your SIPP you receive, and when.

But remember, like almost all pension and investment products your SIPP will come with management fees and charges – ensure you are aware of the costs before you proceed. StepstoInvesting.com has a Fees Calculator which will show you examples of how fees might apply to your SIPP. You can find this tool and more information at Stepstoinvesting.com