Self Invested Personal Pension
A Self-Invested Personal Pension (SIPP) is a pension plan that lets you choose how your savings are invested. A SIPP is a type of defined contribution personal pension, which means the value of your pension pot at retirement depends on the amount you pay in and the performance of your investments.
The basics of a SIPP
A SIPP is a form of defined contribution personal pension that allows you to choose your own investments. If you don't want to manage your own investments you can appoint a money manager to make investment decisions for you.
When you're deciding where to invest your money you can usually pick from options including stocks and shares and several types of funds, policies and trusts.
A SIPP is flexible and portable: you can keep paying into it even if you change jobs or stop working. Your employer can also choose to contribute to your SIPP.
As with all defined contribution pensions , the amount that you will have available when you retire depends on the contributions that you (and any employers) have made and how your investments perform over time.
Why choose a SIPP?
A SIPP can be a good option if you want to combine your pension pots into one single fund and then actively manage your money yourself, or choose a money manager to do this for you.
With other types of pension, decisions about how to invest your money are in the hands of your pension provider.
This means that a SIPP comes with a certain level of responsibility, and requires savers to have some understanding of investing and to keep an eye on their investments.
You can usually opt to pay quite a low monthly amount into your SIPP, but a higher monthly contribution sometimes gives you access to more investment options.
SIPP fees and charges
If you've got a substantial pension pot then you can choose a 'full SIPP', which will offer a wide choice of investments but is also likely to charge a high set-up fee, an annual management fee and hefty trading fees.
The more accessible and affordable SIPPs are often called 'low cost' or 'lite' SIPPs. These tend to impose lower charges for buying and selling shares and lower annual admin fees. Many of them charge a minimal set-up fee or none at all.
There are many different SIPPs available and they have different fee structures, so it's important to check and compare carefully. As well as fees for setting up your SIPP, annual fees and trading charges, also take a look at any exit penalties and the charge you'll have to pay if you want to draw an income from your SIPP.
Most SIPPs are only offered to UK residents, however, some SIPPs can be used by non-UK residents. International SIPPs are an extension of UK self invested pensions.
There are a few differences between International and UK SIPPs. They are structurally both UK pension plans, but there are some differences in terms of flexibility. They were created for pension transfers where QROPS are not appropriate or necessary. They allow for different currencies and are more suitable for people retiring abroad.
International SIPPs offer a wider product range, more control over where your pension money is invested and are often viewed more globally.
International SIPPs are subject to the same tax relief rules as UK SIPPs - where income must be declared to the HMRC. In addition, the trustees must report member payments. Like most personal pensions income can be drawn from the age off 55.
Other personal pension schemes and many occupational schemes can be transferred into a SIPP and cash contributions can also be made. There are limits on tax relief for the first 5 years of non UK residence if you are an expat, and the lifetime allowance limit (LTA) also applies which is up to 55% tax on funds over £1.055m.
If you live in a country without a double taxation agreement with the UK, income is subject to UK tax. It's possible to reclaim an element of this, but it could also mean you are taxed in your country of residence.
SIPPS are always exposed to LTA limits in terms of tax liability both with the initial amount and future growth.
SIPP funds can usually be passed to beneficiaries free from inheritance tax - if the amount is under the LTA limit and death occurs before 75.
Set up costs and fees are generally lower than overseas pension schemes but the tax free lump sum allowance is limited to 25% per annum. SIPPS are flexible, too allowing full access to funds at 55.
SIPPs are an ideal way of consolidating several personal pensions that individuals accumulate during their working life. Consolidation reduces administrative complications further down the line. This is true for both international and UK SIPPs, although probably more important to expats.
Seek our professional advice if you're not sure if a SIPP or any other type of financial product is right for you.