SIPPs

Louiseandhermoney

Please can someone explain to me (as though I'm a nine year old!) exactly what a SIPP is and whether I should consider one.  I have a pension (People's Pension) which I contribute to (with my employer).  I have the ability to save a little more each month (which I would like to do for the medium term planning towards retirement - I'm 60 years old).  Is a SIPP something I should even consider or is it too late?  If so, what's the difference between that and the pension I currently have.  FYI I also have money in a stocks ISA.

Green_hopeful

A sipp is a pension that you set up with a provider and invest. Its a bit like a stocks and shares isa. You put money in and then you can buy shares or funds (shares bought by someone who should know what they’re doing). The advantage is that they get your tax back so if you pay 20 percent tax and pay in £6k they top it up to £8k. If you pay 40 percent tax you can claim the extra tax back. It may be taxed as income when you get the money out. The sipp provider charges fees for the service. 

I found it a little intimidating investing the money but I have followed the suggestions by Fidelity who i am with and it has been ok so far. 

Someone more knowledgeable will be along for the details but can you put more into your work pension. If you can do that by salary sacrifice you can avoid paying the tax and national insurance. That’s what I would have done if I had known what I was doing but obviously everyone is different. 

Dazed_and_C0nfused

Green_hopeful said:

A sipp is a pension that you set up with a provider and invest. Its a bit like a stocks and shares isa. You put money in and then you can buy shares or funds (shares bought by someone who should know what they’re doing). The advantage is that they get your tax back so if you pay 20 percent tax and pay in £6k they top it up to £8k. If you pay 40 percent tax you can claim the extra tax back. It may be taxed as income when you get the money out. The sipp provider charges fees for the service. 

I found it a little intimidating investing the money but I have followed the suggestions by Fidelity who i am with and it has been ok so far. 

Someone more knowledgeable will be along for the details but can you put more into your work pension. If you can do that by salary sacrifice you can avoid paying the tax and national insurance. That’s what I would have done if I had known what I was doing but obviously everyone is different. 

Wishful thinking there!

If you add £6,000 to a SIPP then the tax relief added will be £1,500.

Making a gross contribution of £7,500, the £1,500 being 20% of the gross contribution.

crv1963

Louiseandhermoney said:

Please can someone explain to me (as though I'm a nine year old!) exactly what a SIPP is and whether I should consider one.  I have a pension (People's Pension) which I contribute to (with my employer).  I have the ability to save a little more each month (which I would like to do for the medium term planning towards retirement - I'm 60 years old).  Is a SIPP something I should even consider or is it too late?  If so, what's the difference between that and the pension I currently have.  FYI I also have money in a stocks ISA.

SIPP- Is a pension where you choose the funds to invest in, there is information to make an informed choice and tools to help you choose what level of risk you are comfortable with both from some SIPP providers and on the internet.

Peoples Pension is as far as I can see a pension that employers use to auto-enroll their staff in, they contribute to this as well as you, I haven't checked but you probably have a choice of funds to invest in depending on your attitude to risk.

You could see which would work better for you, for example you could ask your employer if you pay more into the Peoples Pension will they pay more in. Some do and some don't. If they do then it may be better to save enough extra into your current pension simply for employer contributions before considering a SIPP.

If you do decide to go for a SIPP then you need to decide how much monthly you will pay in- some have minimum contribution levels.

The difference between a SIPP and Peoples Pension is your employer has to contribute a minimum percentage to it by law, with a SIPP they don't. Usually although there probably are exceptions it is considered best to contribute to a workplace (employer) pension to gain the most employer contributions first and then consider a SIPP for further contributions.

All these schemes claim the tax back from HMRC. This is at whatever your highest rate is, hence people talk of 20% and 40% rates. If 40% rate taxpayer they only claim 20% to the pension and you claim the other 20% through your tax return forms.

Pensions beat ISAs simply because of the 20% claimed back from HMRC being added to your investment, however when the pension pays out there is a likelyhood that you may have to pay tax after the initial 25% tax free sum has been taken.

Only you can decide which to go for and how much a "modest amount" is, as this of course will vary from person to person depending on income and expenditure.

You would do well having a read up of a few SIPP providers and run some figures on a thread on here to ask for information and suggestions as no one gives advice on a public forum.

Rich1976

Sipps are pretty much for people who like to manage their own investments as there are thousands of funds to choose from so you would pick the ones you like the look of. Charges can be lower or higher than a workplace pension. But really you would need to know what you are doing when choosing funds. People also choose sipps if their work pension doesn’t provide the funds they want.

with workplace pensions, most people (90%) remain in the default fund unless they choose another fund instead.

if you are not interested in managing your own investments I would stick with the workplace plan and just pay more into that. Your employer should let you request to increase your contributions or you may be able to pay by debit card when you want.

LHW99

As long as your extra payments don't take your salary below minimum wage, using the work pension keeps it all together, so makes for a bit of simplicity if you are unfamiliar with the whole thing.

Sipps generally have a lot of possible investment choices, although I think some of the robo offerings like Pensionbee have fewer funds, but are likely to charge more in fees.

There are also personal pensions which have limited choices, but they are more old-fashioned now.

Albermarle

Firstly , SIPPs, workplace pensions, personal pensions are all DC pensions ( Defined Contribution) .
Legally and tax wise they all work by the same rules. So there is no tax advantage or disadvantage, when adding or withdrawing from any of them.

A workplace pension is put in place by your employer. Typically they will have a limited range of investments available.
A key point is that if you do not choose an investment ( and very few do) your money goes into a default investment fund.
A SIPP is normally something you set up yourself, and has thousands of investments of different types to choose from. Normally when you add money it goes into cash account until you invest it.
A personal pension is also something you set up yourself, but is more like a workplace pension, although will probably have a wider range of investments to choose from.
Some personal pensions call themselves SIPPs when they are not, as it is seen as good marketing.

If you have a workplace pension and want to contribute more, than increasing contributions to that is the easy route.
You should only open a separate SIPP if you have some interest/knowledge in investing.
Having said it does no harm to investigate more what choice you have in your workplace pension, rather than being oblivious like most people with one .

Green_hopeful

Dazed_and_C0nfused said:

Green_hopeful said:

A sipp is a pension that you set up with a provider and invest. Its a bit like a stocks and shares isa. You put money in and then you can buy shares or funds (shares bought by someone who should know what they’re doing). The advantage is that they get your tax back so if you pay 20 percent tax and pay in £6k they top it up to £8k. If you pay 40 percent tax you can claim the extra tax back. It may be taxed as income when you get the money out. The sipp provider charges fees for the service. 

I found it a little intimidating investing the money but I have followed the suggestions by Fidelity who i am with and it has been ok so far. 

Someone more knowledgeable will be along for the details but can you put more into your work pension. If you can do that by salary sacrifice you can avoid paying the tax and national insurance. That’s what I would have done if I had known what I was doing but obviously everyone is different. 

Wishful thinking there!

If you add £6,000 to a SIPP then the tax relief added will be £1,500.

Making a gross contribution of £7,500, the £1,500 being 20% of the gross contribution.

Yes ok. My sums were rubbish.