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A Self Invested Personal Pension (SIPP) is a pension scheme that allows individuals to make their own decisions about what to invest in. It is recognised by and registered with the HMRC and is designed to offer the increasingly important feature of choice to those who wish to make the most out their pensions.
The SIPP works as a “tax wrapper”- providing for 20% tax relief on contributions into the pension. It features the same tax benefits and contribution levels as a Personal Pension and/or Stakeholder Pension. Up to 100 percent of income can be funneled into the scheme (up to £40,000) while you are still working, and up to £3,600 of non-income. There is much greater range flexibility than is offered by Personal Pension Plans because SIPP’s allow for the inclusion of equities, property, and a wide range of other assets.
A SIPP allows individuals that have several smaller pensions to consolidate their assets into a single pot. This provides several advantages, not the least of which is knowing where your money is and keeping it together. Another attractive feature is the power to choose how you take your retirement benefits. With a SIPP you are not required to purchase an annuity but can choose to take income drawdown at retirement instead.
Of course the opportunity for choice and potentially greater growth brings greater personal responsibility for the outcome of possible loss. An informed decision is often the difference between growth and stagnation.