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Sector Focus: Finance


Five reasons to consider if a SIPP is right for you


By Richard Borrington (pictured), Business Owner and Financial Planner at Boolers


As the responsibility for pension savings continue to shift to individuals, a Self-Invested Personal Pension (SIPP) may be appealing. It’s a saving vehicle that allows you to take greater control of how money is invested and there are many reasons why you may be considering using a SIPP. The majority of pensions are


invested, hopefully delivering growth through returns over the long term. A Workplace Pension allows you to choose from a range of investment portfolios, though you can’t choose particular stocks and shares. In contrast, a SIPP allows you to choose your own investments from a larger selection. As with a Workplace Pension, contributions will benefit from tax relief.


So, why should you consider a SIPP?


1. Take advantage of tax relief The key benefit of saving in any pension product is the tax relief given on contributions. This valuable benefit applies to SIPPs too. The tax relief tops up your


contribution and is an incentive to encourage workers to save more. Tax relief is available on all your contributions at the highest rate of income tax that you pay. For basic rate taxpayers, this is 20%. If you’re a higher-rate taxpayer or additional-rate taxpayer it will be 40% and 45% respectively.


74 CHAMBERconnect Spring 2019


2. Bring multiple pensions together If you have a Workplace Pension at every company you work with, it’s likely you’ve amassed several different pensions; the average person holds 11 different jobs in their lifetime. It can make keeping track of these various pots challenging and it may mean you’re paying more in fees. A SIPP allows


you to transfer all these different pensions into a single pool. Tracking investment performance is important as you save into a pension, having just a single one to keep an eye on can help make it easier to ensure you’re on the right track. Choosing to bring pensions together can be beneficial as you plan for retirement too.


As the name suggests, the Annual ‘You need


to be confident in your ability to make


investment decisions’


Allowance restricts how much can be placed in a pension each year, the cap is based on your earnings. The standard cap is £40,000 or your annual income, whichever is lower. However, if your income is above £150,000, you’ll be subject to the Tapered Annual Allowance. This reduces your Annual Allowance by £1 for every £2 of income above this amount, to a minimum of £10,000. If you’ve already started accessing your pension, the


maximum you can place in a pension is £4,000 per year.


The Lifetime Allowance is the total value your pension can


3. It’s an option if you don’t have a Workplace Pension If your employer doesn’t offer a Workplace Pension, for example, if you’re self-employed or a business owner, a SIPP provides you with an effective option to start building up retirement provisions. Anyone under the age of 75 can pay into a SIPP. The same Annual Allowance and Lifetime Allowance restrictions apply with a SIPP. Crossing the threshold of these restrictions could lead to you facing higher charges.


reach. This is currently £1.03m, which is made up of your contributions, employer contributions, tax relief and investment gains.


4. Greater control of where your savings are invested This is a key reason many individuals are drawn to SIPPs. While you do have some degree of control when saving into a Workplace Pension, through selecting from a range of portfolios, you’re still restricted. Using a SIPP allows you to take complete control and build up an investment portfolio that meets your exact needs and ambitions.


5. It’s an effective way to invest for the long term If you’re planning to invest for the long term, saving into a pension may suit you. The returns generated from


investments held within a pension grow free from Capital Gains Tax (CGT) and Income Tax. As a result, it can make sense financially to invest through a SIPP rather than standard investment vehicles, maximising the total you benefit from. Of course, you won’t be able to access these returns until your pension becomes available. Therefore, if you’re likely to want to


make a withdrawal from your pension before this point, an alternative, such as an ISA (Individual Savings Account), may be better for you.


Before you decide to use a SIPP As with all financial decisions, there are drawbacks to weigh up with a SIPP too. First, all investments do carry


some risk. It’s important that your chosen investments reflect your personal attitude to risk, capacity for loss and investment timeframe. As a result, you need to be confident in your ability to make investment decisions. Secondly, you’ll be entirely


responsible for the results of the investments and, therefore, the level of retirement income. This can be a daunting prospect. It’s an area that advice can help


with by providing guidance and taking into account your wider financial plan.


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