A SIPP is a Self-Invested Pension Plan,which is offered by companies such as Bestinvest,whichinvolves investing your pension money where you choose in order to make a long-term profit for retirement. There are a number of factors to consider if you are considering this scheme, so here is a short guide to SIPPs.
SIPPs provide a large amount of tax relief for pension contributions to those who invest in them, and high earners who normally pay higher Income Tax will benefit greatly from this. As demonstrated by Bestinvest, someone who pays 45% Income Tax and invests £12,500 will receive tax relief amounting to £5625, making them an attractive option for those wanting to maximise savings.
They are also exempt from Capital Gains Tax, and you can re-invest the money you save should you wish. Although you will benefit more from investing larger amounts, these schemes are becoming increasingly available to lower incomes.
Freedom to Choose
You are also free to choose what you invest your pension in, which is a major factor in deciding whether these are right for you. With the ability to manage your investments and decide for yourself which market may prove the most lucrative, these schemes are ideal for those who wish to manage their money.
From gold to stocks and shares, the choice is wide and varied, and you can diversify and invest in many different assets of your choosing. Many prefer this as opposed to a stakeholder pension in which choice of investment is usually very restricted.
Are They for You?
All investments are risky, and there is no guarantee that whatever you choose to invest in will bear fruit. Higher end SIPPs usually come with expert financial advice to limit risk, whereas lower end ones might not, and are thus riskier. Therefore, they are not for everyone, and some people prefer a simpler, steadier pension plan in which the investment choice is made for them.
SIPPs require the will to look after your investment to ensure it is going in the direction you want it to. This necessitates a good level of research and possibly adviceto avoid disappointment come retirement.
SIPPs areone of the best ways of potentiallymaximising your returns, especially if you are willing to put a bit more money into a pension scheme which can yield high profits.The hefty tax relief and freedom to invest in what you wish make them attractive, just make sure you research all your options before choosing any pension scheme.