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Self-invested personal pensions (SIPPs) are a popular way for UK savers and investors to take control of their retirement savings. Unlike traditional pensions where your investment choice is limited, a SIPP puts you firmly in the driving seat. With greater freedom, however, comes the need to ensure your SIPP is working towards your goals.
Choosing your own investments can be highly rewarding, but it also requires thought, planning, and an awareness of the rules. So we’re going to explain some strategies to help you make the most of this powerful retirement investing account.
You could keep more money for your future with ii’s low, flat-fee Personal Pension and enjoy a cashback boost: Get £200 cashback when you open a SIPP and deposit or transfer a minimum of £15,000. T&Cs apply.
Here’s a rundown of some key ways you can ensure your SIPP is working as hard as possible:
One of the biggest benefits of a SIPP is tax relief on contributions. If you’re a basic rate taxpayer, you should get automatic 20% tax relief from HMRC that your SIPP provider will claim and add to your SIPP. In practice, because of the maths, this essentially works out as a 25% top up on money you put in.
However, if you’re a higher or additional rate taxpayer, you have to take an extra step and claim further tax relief back from HMRC with a self-assessment tax return or by using the new online system. After filing your return or using the online service, the extra 20% to 25% tax relief due will be paid out to you as cash by HMRC (which you can invest into your SIPP if you want a further boost).
For most, you can put in up to £60,000 each year or 100% of your salary (whichever is lower, across your private pensions so this would include your workplace pension) and get your corresponding tax relief. But, if you really want to squeeze as much juice as possible, you can use something called “carry forward” which lets you include any unused allowance from the past 3 tax years.
It’s crucial to keep your fees as low as possible. One of the best ways to achieve this is with a flat fee SIPP. This simply means you’ll be paying a fixed fee for holding your SIPP on a platform, no matter how large your portfolio grows.
Your SIPP could end up being a significant pot by the time you reach retirement. Some platforms charge a percentage fee, which looks small on the surface, but those fees balloon as your SIPP grows, especially if they’re uncapped. Whereas a flat fee means that you don’t fork out more in fees as your SIPP portfolio (hopefully) increases in value.
Sometimes, as you’re starting out, percentage fees can work out cheaper for small portfolios; but always remember to check the fee structure to understand exactly what you’ll be paying. Also, check what commissions your platforms charge, you can sometimes reduce or avoid investing commissions by setting up a regular monthly investment.
With a SIPP, you’re not locked into default funds, you can build a portfolio tailored to your goals. Many investors use SIPPs to hold:
You could keep more money for your future with ii’s low, flat-fee Personal Pension and enjoy a cashback boost: Get £200 cashback when you open a SIPP and deposit or transfer a minimum of £15,000. T&Cs apply.
One of the biggest drags on the performance of pensions and SIPPs is usually people not investing in an appropriately aggressive manner. Because it’s a retirement account, savers sometimes assume it should be invested in the most risk-averse manner possible. Realistically, just like with any other investment portfolio, your SIPP investments should align with your individual risk appetite, time horizon, and goals.
Choosing more conservative investment options could limit your potential growth, and if you’re decades off retirement and willing to accept a level of volatility, you may want to explore more adventurous or aggressive investments to offer a greater likelihood of reaching your retirement targets.
Also, SIPPs are designed for retirement. Money invested is typically locked away until age 55 (rising to 57 from 2028). Because of this, a long-term growth strategy often makes sense, leaning more towards equities earlier in life and shifting towards defensive assets as retirement nears.
“A long-term growth strategy often makes sense, leaning more towards equities earlier in life and shifting towards defensive assets as retirement nears.”
If you’ve built up pensions from different employers, a SIPP can be a convenient way to bring them together. This can reduce paperwork and give you a clearer view of your overall retirement pot. Just make sure you check whether you’d lose any valuable benefits before making any moves or transferring.
Markets move, and so will your portfolio’s weightings. Reviewing your SIPP at least once a year and rebalancing (if necessary) ensures your investments stay aligned with your goals and risk tolerance as you transition through various life stages.
Keep in mind, it’s best to avoid checking your SIPP portfolio on a regular basis if you’re likely to get spooked by periods of volatility, because you could end up making rash decisions that hurt the long-term performance of your portfolio.
When you reach retirement age, you can usually access up to 25% of your SIPP tax-free. The rest is taxed as income for that year.
Thinking ahead about how you’ll draw down funds can help you minimise your tax burden and make your money last.
You also have the ability to use your SIPP alongside other tax-efficients accounts like a stocks and shares ISA, cash ISA, or lifetime ISA (LISA) to structure your income in a way that allows you to reduce the level of tax you need to pay.
If you’re considering opening a SIPP, interactive investor (ii) offers one of the most competitive and flexible options in the UK.
Here are some of the key features of the ii SIPP:
If you want to know more about interactive investor (ii), you can check out our full ii review, including details about its SIPP.
Using a SIPP to your advantage is a powerful way to take control of your retirement savings. By making smart use of tax relief, investing for long-term growth, and keeping your portfolio on track, you can significantly boost your pension pot – along with the likelihood of affording your ideal lifestyle in retirement.
For UK investors who want both flexibility and value, interactive investor’s SIPP is a compelling choice thanks to its flat-fee structure, broad choice of investments, and expert support. Always make sure your SIPP provider and investments match up with the rest of your individual needs and finances.
Invest in yourself. Invest in your pension.
You could keep more money for your future with ii’s low, flat-fee Personal Pension and enjoy a cashback boost: Get £200 cashback when you open a SIPP and deposit or transfer a minimum of £15,000. T&Cs apply.
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