A SIPP, or self-invested personal pension, can allow more freedom than other personal pensions.
In particular, the freedom to choose your own investments gives you control over where and how you invest. For example, a SIPP allows for a far wider range of investments, including commercial property, shares, and, for more speculative investors, art, fine wines, vintage cars, and other similar investments.
Read on to discover five useful benefits of using a SIPP for your retirement savings.
1. Enjoy the same great tax benefits as other pensions
When you save into a SIPP, you’ll enjoy the same generous tax benefits as you would with other pensions.
Using a pension for your retirement savings is incredibly tax-efficient, and investing through a SIPP allows you to grow your money free of UK Income Tax and Capital Gains Tax (CGT).
If you’re a UK resident and under age 75, you can receive between 20% and 45% tax relief on your personal contributions up to the amount you earn (usually limited to £60,000). For any contribution you make (up to the Annual Allowance limit of £60,000 for the 2023/24 tax year), the government will add a 20% boost in tax relief. This tax relief is added automatically, even if you don’t pay tax.
As with other pension arrangements, if you’re a higher- or additional-rate taxpayer, you can claim the extra 20% or 25% through your tax return.
Typically, SIPP arrangements fall outside your estate and are free from Inheritance Tax (IHT), allowing you to pass on pension wealth tax efficiently – in some case, completely tax-free.
Remember, pension and tax rules can change, and benefits depend on your location and circumstances. To find out the tax benefits you could enjoy by using a SIPP, please contact us to speak to one of our local pension advisers.
2. Tailor your SIPP investments to suit you
One of the biggest benefits of using a SIPP for your retirement savings is that they allow greater control over where your savings are invested.
This means that a SIPP wrapper could help you build an investment portfolio that meets your exact needs and lifestyle goals.
Investments that can be held in a SIPP include:
- Cash
- Stocks and shares
- Unit trusts
- Open-ended investment companies (OEICs)
- Gilts and bonds
- Investment trusts
- Insurance funds
- Off-shore
- Gold
- Commercial property including agricultural land.
3. Borrow money to purchase investments
If you have a SIPP, it’s possible to borrow money from your fund to purchase investments.
For example, you could use your SIPP to help you take out a mortgage to fund the purchase of a commercial property, which could then be rented out.
In such cases, you can then arrange to have the rental income paid directly into the SIPP, which could then be used to pay the mortgage and other costs associated with the property.
4. Hold funds in different currencies
One flexible plus point for expats, or those intending to retire abroad, is that you can set up an international SIPP.
An international SIPP allows you to hold funds in currencies other than pound sterling, including euros, US dollars, and Australian dollars.
Alongside other flexible options, this helps you tailor your SIPP savings to align with your long-term financial plans, potentially removing any exchange rate fluctuations when you begin drawing from your pension savings.
5. Consolidate multiple pensions into a single easy-to-manage plan
For some, a SIPP can also be one of the best ways to consolidate multiple pensions into a single easy-to-manage plan.
If you have multiple pensions from several employers, a SIPP could be a useful way to consolidate your pensions into one.
Consolidating several pensions can make administration easier to deal with.
Plus, by switching your pension to a SIPP with a greater set of investment options, you may find that, over the long-term, you're able to boost your retirement income through smarter investments or better rates.
Seek expert advice from Alexander Peter
Pensions can be a complex area to navigate. For this reason, we always recommend you seek independent financial advice, preferably from an expert pension adviser.
If you are considering using a SIPP for your retirement savings, or wish to consolidate several pensions into a SIPP, it's important to seek advice from a trusted source.
This is particularly true when transferring existing pensions as you'll first need to ensure that you won't be losing valuable benefits or guarantees that you would relinquish by leaving the scheme.
Your pension may be the most valuable asset you own so make sure you protect it and talk to us first. We are happy to chat about your situation and answer any questions you may have about your pension savings.
Get in touch
Our advisers provide specialist advice to British expats and international employees living around the world. We put your long-term goals at the centre of the financial plan we create for you, helping you to make your dreams a reality.
If you’d like to find out more about the benefits of using a SIPP for your retirement savings, please get in touch.
Email enquiries@alexanderpeter.com or call us on +44 1689 493455.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not are liable indicator of future performance.
