Warren Buffett says:
"We do not have, never have had, and never will have
an opinion about where the stock market, interest rates
or business activity will be a year from now"
SIPPs or Self Invested Personal Pensions or DIY Pensions are, as the name implies, a means of saving for your retirement but with you in control.
Since the early 1990s it has been possible to manage your own pension in a controllable fashion.
Gone are the days when we had to rely on some smooth-talking city type in a fancy suit acting as our "advisor" who would place us in a pension fund of what was good for him and not necessarily good for us.
SIPPs are a tax efficient means, jut like traditional personal pension plans, of saving for your retirement. Meaning basic rate, higher rate, and additional rate taxpayers get 20%, 40%, and 45% tax relief respectively on contributions up to a limit.
Investments within a SIPP grow free of income and capital gains tax.
Those investments can be ordinary shares, unit trusts, OEICs (Open Ended Investment Companies), bonds, ETFs (Exchange Traded Funds), and commodities.
It's easy peasy to set up your own SIPP.
On this website there is a separate section: 'Stock Trading Platform' where you can choose a SIPP provider you wish to use. There are pros and cons of each. Charges and services differ from one to the other although we find that ease of use to be a major factor in our choice of SIPP provider.
Visit 'Stock Trading Platforms' and choose for yourself.
If you are fortunate enough, you may be part of a pension scheme through your work.
If so, congratulations. You're half way to having a successful retirement.
It used to be that such workers were part of a 'defined benefit scheme' (a.k.a. final salary scheme) where the employer promises a set level of income in retirement.
But these days saving through a works scheme is done via a 'defined contribution scheme' where both the emplyoee and employer put money into the pot.
Such a scheme is a simple way to build up a pension and get the bonus of any contributions made by the employer.
If you're lucky enough to be in such a scheme - great. Keep it going.
However, if you want to use some spare cash and save into a scheme outside of work, or if you are not in any company scheme, then a SIPP is ideal for you.
As alluded to earlier, a massive benefit of SIPPs is that you get tax relief on your contributions at the rate at which you pay income tax (up to an annual allowance and within the lifetime allowance - currently these are £40,000 and £1,030,000 respectively).
SIPPs work as if you had a normal stocks and shares account and all your dealings are done online via an online platform. Which makes them extremely flexible.
If you want to retire earlier and richer or just want to retire with a (very) decent pot, then you have to discipline yourself into contributing to your SIPP regularly. This is best done via a direct debit.
Saving regularly usually means saving monthly. Get into the habit of contributing to your Pension Pot each and every month.
You can also add lump sums as often as you want.
Now you have your SIPP set up and your pot is growing just by the contributions you are making. But that's not enough. You want your pension pot to grow much faster.
You need to invest that pot of money into the allowable investments of your choice.
The sections on this website explain how you can do this.
Our website is primarily aimed at investing in ordinary company shares. But you are not just limited to share investing. With SIPPs you are permitted to invest in a wide range of shares, bonds, investment trusts, funds, ETFs (Exchange Traded Funds) and more.
Your SIPP is not for speculating on the Stock Market. If you want to do that, open an account with a spread betting broker or similar. DO NOT use your DIY pension for speculating.
There is a massive difference between investing and speculating. A SIPP is to be used for investing.
But you might immediately shout: "But I don't know the first thing about stocks and shares. I've never bought and sold anything in the stock market. I wouldn't know where to start."
Relax, we all started somewhere.
Here's a question for you: "Have you heard of Warren Buffett?"
You'd have to have been living under a rock not to have heard of our hero. He is a very rich man (over $90 Billion and growing) and he got his wealth by investing in the Stock Market.
O.K. so you won't ever be as successful as he has been.
You don't have to be. Just a basic understanding of his principles will set you on the right road to success.
Understand everything that is on this website and you will gain the confidence to invest like Warren. Besides, you will not be glued to your computer monitor watching share price movements.
In fact, chances are, you may only trade half a dozen times a year. Or even less.
Warren Buffett's philosophy is to buy and hold a share. We tend to agree with that except for minor adjustments.
Forget any notion of 'Get Rich Quick'. If this is what you seek - you are on the wrong website. But you are on the right website if you are looking for 'Get Rich Long'.
You may like the idea of buying a share one day and selling it the next and making a cool £1,000 profit. It's rarely done. And usually by good luck if it is.
Forget also the idea of making a 'quick turn'. Trying to do so is speculating and this website does not encourage such reckless trading.
Do some research, read about Value Investing on our website and you'll never get stung. Looking for that 'ten bagger' is dreaming. So rarely does it happen. Stick to the principles of Warren Buffett (as outlined on this website) and you will retire with a healthy pot.
The investments this website details are not so much which individual share should you buy but what type of share should you buy.
And, there is one type of share that you should buy, all day long (and twice on Sundays).
The section on 'Fundamental Analysis' is a great place for information.
Another place to peruse is the Retirement Planning Guide
Read the section on Stock Trading FAQ A lot of common questions are addressed there.
The younger you start a SIPP the better will be your nest egg when you come to draw benefits.
Don't believe us?
Try playing around with our 'Pension Pot Calculator.'
Current rules state that you can retire as early as 55 (rising to 57 by 2028). Our view is that you would need a ginormous pot of money to last to the end of your days if you retire this early. But your circumstance at the time may dictate.
The latest age that you can draw your pension would be 75 years old.
Most of us would opt to receive our benefits somewhere in between aged 55 and 75.
There are so many unknowns. How long will you live? What health would you be in? Maybe you would be forced to 'hang up your boots' early. You just can't answer any of those questions. You can only prepare. And you should.
Assuming you make it - what are your options?
So you're ready to retire. You are 55 (not likely - but possible). 65 maybe.
More likely 70. Or maybe you're a workaholic and stuck it out to the bitter end (75).
Contact any SIPPs provider and they will guide you. Whatever your age, you have 4 options. You can:
These are briefly outlined below.
Prior to pension freedoms this was the only option.
You can purchase an annuity from any number of insurance companies who will then convert your pot of money into an income for life.
We don't like annuities. We think they are a bad option, simply because in these days of low interest rates, annuity rates are also low.
You've spent a working lifetime saving for your retirement pension why "risk" it all on a poxy annuity? An income for the rest of your life - great! If you live till you're 100.
Suppose you retire at 65, purchase an annuity, and get run over by a bus. There goes your whole pension pot.
You can purchase a joint annuity with your spouse, but that would mean lesser income because there would be two of you covered.
It's only our opinion of course, but we don't consider annuities a good buy at all.
With this option you can Drawdown income from your SIPP whilst the remainder of your pot stays invested. Thus having the potential for still further rises in your pot value. The downside here, of course, is that your pot value can fall as well.
But, another attraction of this option is that you are permitted to draw down 25% of you total fund value TAX FREE. You would be incredibly stupid not to take this tax free sum as all other drawdowns are taxable at your standard rate.
With this option you can leave money in your pot untouched and make withdrawals as and when you need to.
This is called 'Uncrystallised Funds Pension Lump Sum' (UFPLS). Quite a mouthful.
25% of each lump sum can be withdrawn TAX FREE and the remainder subject to income tax at your standard rate.
Your final option to taking your pension is that you can use a combination of all the other options. That's flexibility.
Our comments regarding annuities remain negative as previously commented.
In a word - enjoy!
Investigate the various SIPPs providers in the market. Ask your questions. The, take action. Don't procrastinate - take action. Every month's delay will cost you serious money.
We'd like to think that by the time you have retired, or semi-retired, you are in good health.
We are not doing bad. We have had our issues, but we're still here. We try to keep fit. And for sure, we try to live our retirement to the full.
We love travelling. And so should you. The world is such a wonderful place - get out there and see some of it.
We have created a separate section called Retirement Ideas which should give you some food for thought.
The key features of SIPPs are:
Set up your DIY Pension Plan (a.k.a. SIPP) as soon as you possibly can. Yesterday would be a good time.
Salt away as much money as you can afford into your SIPP. Adding to it with lump sums if you can.
When you are ready for retirement activate Drawdown from your SIPP. Don't forget that the real beauty of activating Drawdown is that you get to take 25% of your pension - TAX FREE!
And take it while you are still young enough to enjoy it. Have yourself the holiday of a lifetime. Just enjoy life.
But remember, non of the good life in retirement can happen if you don't plan.
SIPPs are the ideal vehicle for a DIY Pension.