A SIPP is a Self-Invested Personal Pension. SIPPs are a great pension solution for DIY investors as they give the the holder full control over how the funds are invested.
A SIPP is a tax wrapper, meaning that the assets held inside it benefit from some tax advantages and exemptions. For SIPPs, like ISAs, the funds held inside can grow and are exempt from capital gains tax on growth and income tax on dividends or interest received.
Another pension-perk is that you receive income tax relief on the money that you contribute to your SIPP. Tax relief is, of course, there to incentivise us to save for our retirement but it also means that you benefit from ‘gross roll-up’ - a fancy way of saying that you have the potential to earn growth on the funds that you have invested rather than paid as tax.
Unsurprisingly, these perks don’t come without drawbacks. Importantly, you cannot access funds held within a SIPP until you reach retirement age and there are limits to how much you can contribute each year and in your lifetime. When you do retire and draw from your pension, your withdrawals will be subject to income tax.
What’s different about a SIPP?
Many of the features outlined above are consistent across all types of pensions, however SIPPs specifically have several advantages.
Firstly and importantly for DIY investors, you have greater control and flexibility over what you can invest in in a SIPP. With traditional personal pensions, you may only have a small selection of investment options to choose from (if you have any choice at all!). By comparison, in a SIPP you can usually invest in almost any fund, investment trust or ETF.
You can also typically access a SIPP earlier in retirement; you can currently draw from a SIPP at age 55 (increasing to 57 in 2028). By comparison, with traditional personal pensions (such as old workplace schemes or stakeholder pensions), you may not be able to access the funds until age 60 or 65. Lastly when you do come to retire, SIPPs can offer more flexibility as to how you can access your pension assets whereas traditional personal pensions may be more restrictive.
SIPPs are great if you want to actively manage your own investments; they give DIY investors all of the tax benefits associated with pensions along with the freedom to invest in line with their own views and values.
At TILLIT, we are working away behind the scenes and we plan to launch SIPPs very soon. Want to get early access?
Register your interest and we’ll be in touch as soon as the TILLIT SIPP is ready.