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A brief guide to SIPPS pensions

As professional financial planners, we offer guidance and support with all different types of pensions. Here we’ll take a brief look at SIPP pensions, so you can assess whether a SIPPS may be the right option for you.

What is a SIPP pension?

SIPP is an acronym for Self-Invested Personal Pensions; approved by the UK government and HMRC, they offer plenty of flexibility for those wishing to make their own choices regarding their pension investments. As with alternative personal pension schemes, SIPPs are classed as ‘tax wrappers’, where you can benefit from tax allowances on certain types of investments. You can choose any asset as your investments, but some will incur tax charges, so it’s important to consider your options carefully.

Investments that will not attract tax charges with a SIPP pension are numerous, and include, but are not limited to:

  • Stocks and shares listed on recognised exchange
  • Commercial property
  • Investment trusts which are FSA regulated
  • Unit trusts, OEICs and UCITS funds that are UK authorsied

This is by no means a comprehensive list, so do feel free to arrange a consultation with one of our planners if you’d like more information.

There are some other investments that are theoretically allowed, but which will be heavily taxed and therefore usually discounted by SIPP pension providers. Residential property is one of these, along with assets which fall into the ‘exotic’ class, such as wine, collections of art and vintage cars.

Drawing your SIPPS

A pension can be drawn from a portion of your fund, or in its entirety, once you reach ‘early retirement’ age. After taking your tax free lump sum, the remainder must either remain invested in a ‘drawdown’ or taken to buy an annuity.

SIPPs were previously typically the realm of those with a higher income, but there are now more and more options becoming available for middle income investors. Because you aren’t required to pay tax on contributions, a SIPP can be of huge benefit to people who are subject to the higher tax rate.

You can choose a bespoke SIPP package or a hybrid option, with other variations being available too – the charging structures can become quite complicated though, so it’s a good idea to ask an expert to help you work out the right way forward for your circumstances.

One final word of advice; if you’re considering a SIPP, ask yourself if you’re willing to take personal responsibility for your investments – if you’re happy to take an active role in your pension then a SIPP could be ideal, but if not, you should look around at alternatives as a SIPP is probably not the right option for you.

For more information on SIPPs, please feel free to contact our financial planners at your convenience.

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