What is a SIPP?

What you’ll learn:

• How a SIPP can provide you with access to a wide choice of investments.
• Why our SIPPs are only appropriate for those who are comfortable making their own investment decisions.
• How much you can pay into a SIPP.

A SIPP is a type of personal pension that usually offers you access to a wider choice of investments than other types of pension. You won’t be restricted to pension funds offered by any single pension provider, but instead can invest in a broad range of investments, including shares, unit trusts, open-ended investment companies (OEICs), investment trusts, gilts and bonds and exchange traded funds.

The SIPP itself is essentially a type of tax-free wrapper in which you hold these investments, and the contribution limits, tax reliefs, eligibility and the age at which you can start drawing an income are all exactly the same as other pensions. Remember that the favourable tax treatment associated with SIPPs may change in the future and that the value of this tax treatment to you will depend on your individual circumstances, which can also change.

Greater control

SIPPs are likely to be most suited to experienced investors who are comfortable choosing and managing investments themselves. You need to have the necessary skills to invest your own pension fund, and must remember that the value of investments can fluctuate, so you could get back less than you invested. You’ll usually pay a set fee for the SIPP wrapper, as well as charges which typically depend on the transactions you carry out, the type of investments you hold, or their value. Your pension provider will set the amount. You must make sure you are comfortable paying these fees, as they may be greater than the charges applied to other pensions, particularly company sponsored schemes where costs are often met by your employer.

Some SIPPs do offer investment management, with a specialist making investment decisions for you, but there will be additional charges for this type of service, and again there are no guarantees that you will get better returns or get back what you put in. Smart Investor does not offer this service.

How much you can pay into your SIPP

You can either pay lump sums into your SIPP, or you can make regular contributions, whichever suits you best. Your employer or anyone else can also make contributions into your SIPP on your behalf. There’s a limit on the amount of contributions you can make each year which attract tax relief. For most people, this is currently £60,000, or 100% of your earnings, whichever is the lower. If you have enough income in the current year and belonged to a pension scheme, you can increase your allowance by any unused allowances for the any of the last three years.

Your annual allowance will be reduced if:

• You have drawn a taxable income from a personal pension, in which case the amount that you can pay into pensions and receive tax relief reduces to £10,000 or 100% of your income, whichever is lower;
• If you earn more than £200,000 and you contribute the full allowance of £60,000, you might be affected, as your adjusted income will be over £260,000, and your threshold income could be over £200,000. Find out more about limits and allowances.

How much income you can expect

The amount of income your SIPP could provide you with when you retire depends on several different factors. These include how much you have paid into your pension, and how well your chosen investments have performed, after you have factored in charges. Your income will also depend on the amount that you decide to withdraw as a tax-free lump sum, and whether you decide to withdraw some of your pension as taxable lump sums, or to leave your pension invested and draw an income over time. If you opt to buy an annuity, or income for life, the rates at the point that you purchase it will determine how much income you receive.

SIPPs won’t be for everyone. If you aren’t confident making your own investment decisions, or if you are unsure if this type of pension will be right for you, please seek independent advice.

Please remember that investments can fall as well as rise and you may get back less than you invested. Past performance is not a reliable indicator of future performance.

Find out more about the Barclays SIPP

If you have a Barclays SIPP, you can manage payments into your SIPP, withdrawals or transfers of existing pensions via the manage button on your account. Any other documents for your Barclays SIPP can be accessed here. This includes your SIPP terms, the Key Features Document and the Benefits Guide which set out how your SIPP operates.