PENSIONS

SIPP

Enjoy enhanced control and flexibility over your pension fund investments

What is a SIPP?

A Self-Invested Personal Pension (SIPP) is a type of personal pension registered under the Finance Act 2004, designed for individuals seeking greater control and a broader choice of investments for their retirement savings.

SIPPs offer much more flexibility than standard personal or stakeholder pensions, but this comes with greater responsibility. They are generally suited to experienced investors who are comfortable making their own investment decisions, or those who wish to do so with the help of a financial adviser.

The administration and charges involved can be higher than for other types of pension, reflecting the wider range of options and the need for active management.

The main benefit of a SIPP is the wide range of investment options.

Permissible investments include:

UK and overseas stocks and shares
Government bonds (gilts) and corporate bonds
Investment trusts and Exchange Traded Funds (ETFs)
Unit trusts and Open-Ended Investment Companies (OEICs)
Cash and other money market instruments
Commercial property and land
Certain unlisted shares

Purchasing a commercial property

A SIPP can also borrow money, usually up to 50% of the scheme’s net asset value, to finance investments like purchasing a commercial property. The property can then be leased, with the rental income paid directly into the SIPP in a tax-efficient manner to help cover costs or grow the fund. All transactions, such as a lease to a connected business, must be conducted on commercial, market-rate terms.

However, there are strict rules about what a SIPP cannot hold. Prohibited investments include most forms of residential property and tangible movable assets like art, wine, or cars. Investing in these can lead to significant tax penalties.

Contribute tax-efficiently

Like other personal pensions, contributions to a SIPP receive tax relief. The amount you can contribute tax-efficiently depends on your earnings and the Annual Allowance. If you are already drawing a flexible pension income elsewhere, the lower Money Purchase Annual Allowance (MPAA) might apply.

You can usually begin accessing your SIPP from age 55, increasing to 57 from April 2028. Typically, up to 25% of the fund can be taken as a tax-free lump sum, with the remaining used to generate a taxable income through options like flexi-access drawdown or by purchasing an annuity.

Because of the investment risks and responsibilities involved, SIPPs are not suitable for everyone. It is important to remember that the value of your investments can fall as well as rise.

THE VALUE OF PENSIONS AND THE INCOME THEY PRODUCE CAN FALL AS WELL AS RISE. YOU MAY GET BACK LESS THAN YOU INVESTED. TAX TREATMENT VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE.