How can a SIPP be beneficial for your financial future?

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There are numerous reasons why we fail to save, from a lack of disposable income to gaps in knowledge that prevent us from appreciating the true value of building wealth.

Sadly, there is also a tendency to blame personal and economic circumstances for the failure to save, and while these may be contributing factors we must take individual responsibility for our financial future overall.

This is where pension plans come into play, as they provide a simple and economic vehicle through which to build wealth for your future. They also come in numerous different guises, with SIPPs (self-invested personal pensions) increasingly popular in the UK and capable of delivering financial flexibility and freedom once you have retired.

The core benefits of a SIPP: taking control of your financial destiny.

With this in mind, let’s drill down deeper into the concept of a SIPP and understand its primary benefits.

These include:

1. Choose your own Investments

The main advantage of a SIPP is that it offers you access to a huge and diverse range of investment markets, which in turn enables you to create a portfolio that reflects your outlook and appetite for risk as an investors.

Companies like Bestinvest have ensured that the current generation of savers have access a large selection of investment opportunities, which they can manage independently through their SIPP and optimise their earnings over time.

A SIPP also enables you to consolidate all individual pension pots in a single space, making the task of building wealth easier than ever.

2. Access huge tax benefits

As with other pension types, SIPPs offer considerable tax benefits to those who are savvy enough to capitalise on them.

As a general rule, every £8,000 that you pay in to your SIPP triggers a government contribution of £2,000, while those on a higher tax rate can claim even greater tax relief.

Even if you’re not earning, you can contribute up to £2,880 net each year while also claiming tax relief, which underlines the accessibility of a typical SIPP and it has the potential to help you make the most of your hard-earned income.

3. Enjoy flexible returns and use your Pension fund as you see fit

While traditional pension plans are relatively rigid in terms of when and how you can access your funds, SIPPs offer far greater degrees of flexibility to clients.

You can usually access your pension fund from the age of 55, for example, while you also have the choice of determining how you can use the total amount accrued.

This is alongside traditional pension features such as being able to purchase an annuity or the ability to access 25% of your total fund as a tax free lump sum. This sense of flexibility can empower you to get the most from your savings.

7 COMMENTS

  1. Good Evening, What is the average rate of return, let’s say, on a full SIPP? Does that take into consideration advisor fees? Would a SIPP be best for a DIY investor? What would you advise in addition to a SIPP to round out ones portfolio?

    Thank you!

    • I would think that the rate of return is really something that varies depending on all sorts of factors. It is not really an investment in itself, but more of an approach to investing. The thoughts of a personal pensions are pretty intriguing though, and I think when you combine it with a company-offered plan you can really get quite a good benefit package from it all. It all depends on your retirement plans too though, but I would certainly keep it open as a good option to use.

  2. I wonder if we have SIPPs available in the Philippines or at least a close equivalent. I’m one of those who has difficulty saving on my own, but with products like this, it is very helpful as I’m forced to save. What I find interesting here, is the ability to choose ones own investments. As mentioned, each person has its own risk appetite, and this feature to choose is pretty great as it affords flexibility and investor can select an investment that is suitable to one’s risk appetite. Lastly, a product that offers tax relief is always a good enticement. 🙂
    tabby recently posted…my stock market journey with COL Financial IncMy Profile

  3. Well I have to say that this sounds a lot more flexible than a lot of the options that you see around here. I think that it is certainly a good thing, but it does add another layer of responsibility that you must have, and you have to do your research to know what you are getting. That said, I think that the potential for great rewards is there, and for that I really like this idea. The tax benefits really seem worth it too, and I would love to see the government match contributions that I put towards a savings account like system.

  4. I got curious about SIPPs when read about it here a few months back. The closest I could find in my country is a FlexiFund run by our government’s social security. In any case, I read further on the link provided and it really got me interested and wish that this type of investment could be made available in our country. My fellow countrymen aren’t big savers and I believe an instrument like this perhaps could spur them into saving.
    tabby recently posted…how to withdraw funds from COLMy Profile

  5. I do understand that with investments, you always have to do your homework before you jump in. I would love to learn more about SIPPs. I also would love to know if a SIPP is definitely the way to go for a DIY investor. Sounds really interesting and well worth a try.

    • Well this one is really more important when it comes to doing your homework. Like the article said, you are choosing your investments, more so than a lot of other, more traditional methods for investing your money. I think the word pension in the definition or title is a little confusing, but it shows you that you really do have to do a lot of research before considering these.

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