Intro
Everyone wants to be safe financially for retirement. So it is great you are already thinking about how to save up a large enough pot for later! If you are a UK resident, Self-Invested Personal Pension (SIPP) is a tax-efficient way to do it.
A Self-Invested Personal Pension (SIPP) is a type of personal pension that allows you to choose and manage your own investments, and grow your retirement pot in a tax-efficient way.
THE ESSENCE
- Your investments grow tax-free with SIPP
- Your SIPP contributions get tax-relief
- You can invest in different assets
- You control how much you save and how often
- Your employer may also make contributions to your SIPP
What can you invest in?
A Self-Invested Personal Pension (SIPP) is a type of personal pension that allows you to choose and manage your own investments. With a SIPP, you can invest in a wide range of assets, such as stocks, shares, and funds, and you have control over how your money is invested.
You can contribute 100% of your annual income to your SIPP each tax year, up to the maximum annual allowance of £40,000, including personal and employer contributions and tax relief.
What are the SIPP tax benefits?
A SIPP is a tax-efficient way to save for retirement because your contributions are tax-deductible and your investments also grow tax-free.
The UK government will give you 20% in basic-rate tax relief when you add money to your pension, even if you don’t earn and don’t pay tax. If you are above the age of 18 and under 75 you can pay into a SIPP. If you are not earning you can contribute up to £2,880 net each tax year and receive the tax relief. If you’re a higher-rate taxpayer, you can get up to 40% tax relief.
You can make contributions to your SIPP on a regular or one-time basis, and your money is invested until you reach retirement age, at which point you can start withdrawing from your SIPP. Your employer can also make contributions to your SIPP, either as regular or one-off payments.
How to open a SIPP account?
To set up a SIPP, you need to find a provider who offers SIPP accounts and choose the type of account that best suits your needs. You will need to provide personal and financial information, and you may be required to make an initial deposit.
You have to be above 18 and a UK resident to open a SIPP account. Even if you are a non-UK resident, you can hold one SIPP account, but if you are not a UK taxpayer, your contributions will not receive tax relief. You can also open a SIPP if you are unemployed and/or do not plan to make regular payments.
Once your SIPP account is set up, you can choose the investments you want to make and manage your portfolio online or through a financial adviser. Make sure you compare charges before you choose a provider. Once you reach 55 you can access your whole pension pot.
It's important to remember that investing always carries some level of risk. The value of your investments held through a SIPP can go up or down depending on market conditions and the performance of the assets you have invested in.
