What is a SIPP?

A SIPP is a Self-Invested Personal Pension - a type of personal pension scheme.

In comparison with other pension products SIPPs can offer greater control to the individual investor. A SIPP provides you with a personal tax-wrapper for your pension savings. This 'wrapper' holds your investments until you retire and start to draw a pension income. A SIPP allows you to invest your money as you wish in order to save for your individual retirement needs.

A SIPP can be held alongside other personal and occupational schemes, providing that your total contributions are within limits laid down by the Inland Revenue.

SIPPs were primarily designed for people who want to manage their own retirement fund by dealing with their own investments. If your retirement planning needs are slightly unusual or you simply want more flexibility about the investments you make then a SIPP may be an attractive alternative to more traditional pension arrangements.

As with any pension fund, you cannot take money from the fund until age 55. Once you have reached retirement age you can draw an income from their pension fund rather than buying an annuity straightaway.

Most SIPPs allow investment in a range of assets including commercial property. The FundsNetwork SIPP provided by Standard Life offers you a choice of over 1000 funds from 56 fund companies, including top names such as Jupiter, New Star and Invesco Perpetual. It's great value too, with no initial charges or switch fees on funds and although the usual annual fund management charges will still apply, these can be significantly reduced via Cavendish Online's renewal commission service.


SIPP Tax benefits

As with all personal pensions the SIPP provides tax benefits to policyholders:

  • Your contributions to a SIPP attract tax relief at your highest rate. This tax relief is automatically added when you contribute to your pension.
    If you are a basic rate or non-tax payer this means that you will receive 20% tax relief on all premiums up to your annual limit. This means that for every £80.00 you pay, your pension policy receives £100.00. Higher rate tax payers benefit from the 20% tax relief on payment of a premium and can claim an additional 20% tax relief via their end of year tax return.

  • Your employer can make contributions to your SIPP gross of income tax. These contributions will usually be considered a business expense and attract relief from corporation tax.

  • Investments within your SIPP can grow free of income and capital gains tax (though dividends from UK shares are not tax-free).

  • At retirement you can usually take up to 25% of your SIPP as a tax-free lump sum.

  • If you die before taking benefits, your beneficiaries will not normally have to pay inheritance tax on any money they receive from your SIPP (although it will be subject to 35% tax).


SIPP Premium Limits

  • At the start of the plan if you chose to make regular payments these must be a minimum of £300 per month or £3000 if paid annually.

  • At the start of the plan if you chose to make a single payment or transfer existing pension funds, these must be at least £10000.

  • If your plan reaches £50,000 and you wish to make regular payments these must be at least £150 per month or £1000 if paid annually.