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A Self-Invested Personal Pension (SIPP) is a type of pension that allows you to manage your investment options and save for your retirement. We're going to explain how SIPP tax relief can help you maximise your contributions.
SIPPs work in much the same way as other personal pensions, allowing you to add money either through regular annuity contributions or a lump sum.
You can use a SIPP to combine your old pension schemes into a single, simple account, and control exactly where your money’s being invested.
What are the benefits of a SIPP?
A SIPP can be a great way to top up your UK state pension and take advantage of the tax benefits offered by the government as an incentive for you to do so. Plus, you can control your own investment decisions!
A SIPP is designed to let you:
- Save for retirement in a tax-efficient and flexible way
- Build a pension fund to give you an income and a tax-free lump sum
- Take control of your pension and choose your own investments
- Make transfers from other suitable pension arrangements
- Specify the beneficiary for your policy
How does a SIPP work?
Unlike a workplace pension, where your pension contributions may be matched to a certain percentage by your employer, here the UK government pays an extra 20% in the form of basic tax relief on your pension savings.
Higher rate taxpayers can still claim the extra amount via their self-assessment tax return, but once it’s in a SIPP your money will be exempt from UK capital gains and UK income tax.
How does a SIPP pay out?
The benefits you receive are subject to UK pensions legislation, including a limit on the amount of tax relief you can claim, the earliest age you can take benefits, and a cap on the benefits which can be taken without incurring tax penalties (incl. the amount that can be taken as tax-free cash).
You can start taking money out of your SIPP from the age of 55 (though this is set to rise to 57 from 2028).
Do I get tax relief on my SIPP contributions?
Yes, contributions to your SIPP may be subject to tax relief, depending on any relevant tax rules relating to your individual circumstances.
All eligible UK citizens can pay up to £3,600, or 100% of their earnings each tax year (subject to any applicable Annual Allowance), whichever is greater.
The Scheme Administrator claims tax relief from HMRC and invests this additional amount into your pension plan. For example, a contribution of £10,000 to your SIPP would only actually cost you £8,000 in real-terms, because the Scheme Administrator reclaims the £2,000 of income tax that you initially paid (assuming a 20% basic rate of UK income tax).
If you pay a higher rate of income tax you can claim the extra tax relief through your self-assessment tax return on your personal contributions.
Can I set up a SIPP myself?
It’s really easy to create a SIPP yourself using an app like Plum.
Regulated by the independent financial services regulator, the Financial Conduct Authority (FCA), Plum allows you to consolidate your previous pensions by transferring them all into one account.
SIPPS are offered by Plum Money, which has appointed Gaudi Regulated Services Limited (Gaudi) to act as the Product Provider.
Gaudi are required to supply important information to help you to decide whether this product is right for you. You should read this document carefully so that you understand what you are buying and keep it safe for reference.
It's easy to make additional contributions to your Plum SIPP through the app. You can do this via the Plum ‘brain’ in 3 ways:
1. One-off, contributing from your Plum Balance
2. One-off, contributing from your linked bank account
3. Regularly, by investing parts of your Plum Auto-savings
There is no minimum or maximum amount, though transfers from pension funds that are already in drawdown are not currently accepted.
What investments can I choose in my Plum SIPP?
The Plum SIPP has been designed to make saving and investing for your future as simple and as straightforward as possible.
You can choose from a range of investment funds, typically containing a diversified bundle of Exchange Traded Funds (ETFs) or mutual funds.
Target Retirement Date Fund 🏖
This portfolio will be automatically updated for you, based on the amount of time before your specified retirement age.
Over the longer term, investment choices with a potentially higher risk (and a chance for greater reward) can pay off... however, there might be many fluctuations in the short-term value of those along the way.
A Target Retirement Date Fund helps ensure that more money is allocated to lower risk/reward investments as you near your chosen retirement date.
Global Growth Fund 🌍
This fund invests in a broad range of company shares from across the world, ensuring your pension is diversified in a wide range of investment.
Future Planet Fund 🌱
This fund invests in businesses that meet certain ecological and environmental criteria, so you can invest with a clear conscience.
Are there any charges for a Plum SIPP?
The Plum SIPP is low-cost because it’s just one part of the overall platform, which helps you save money, lower bills, budget and invest simply.
Plum SIPPs are available for free to all Plum customers, and exclusive from any other platform fees (i.e. you do not have to subscribe to one of the paid tiers, either Plum Plus or Plum Pro).
However there are other SIPP charges to consider:
- Product SIPP provider fee: 0.45% per year. This fee is charged annually, billed monthly and deducted from your SIPP investments.
- Fund management fee: The manager of the funds you choose for your Plum SIPP will charge a fee for this service.
Note: each fund may have slightly different charges, typically a percentage of your investment. Fund managers will automatically deduct their fees from the fund they manage. Full details of all fees can be found in the Key Investor Information Document (KIID), provided by the fund manager.
How to consolidate pensions with a SIPP
You can transfer and combine existing pensions into a Plum SIPP, allowing you to manage your retirement savings from a single app 📲
The process is super easy, and can be completed by simply entering a few personal details (such as national insurance no.) along with the names and account numbers for your past pension providers.
For any specific questions or for help transferring pensions to Plum you can speak to our customer support team via ‘chat to human’ in the app, or by emailing email@example.com (though please note that we are unable to provide financial advice).
If you’re looking for a simple way to invest your money for the future, without putting it into a SIPP, then you can use Plum to open a Stocks & Shares ISA or General Investment Account. You can also check our earlier article for a comparison of the best investing apps.Download Plum