DIY Pensions (a.k.a. SIPPs or Self Invested Personal Pensions are one form of Individual Pension approved by the UK Government which permit the owner to make his, or her, own investment decisions.
There are a whole range of allowable investments you can have within your DIY Pension, mainly Company Shares and Exchange Traded Funds.
DIY Pensions have the benefit of being a "tax wrapper" which means that, you will receive tax benefit in line with your level of taxation. For example, if you are a standard rate taxpayer, then, for every £80 of contributions you make to your SIPP the government will actually credit your plan with £100.
This is a massive bonus if you contribute on a regular basis and over a long period.
And there is a further tax benefit when you come to retire (anywhere between the ages of 55 and 75). That benefit lies in the 25% cash-free lump sum you are allowed to take from your Pensio Pot. Any remaining income taken from your Pension Pot will be taxed at your standard rate.
The 25% tax free "bonus" is hugely generous.
It is another reason why you should endeavour to make your Pension Pot as large as is possible.
Just imagine - if you built up a Pension Pot of £500,000 you could withdraw a tax-free sum of £125,000. Wow!
A SIPP is one form of Individual Pension whereby you make your own investent decisions.
Let's be hypothetical for a moment - suppose you opted for an Individual Pension that you didn't have control of any investments. In other words - a managed type of pension.
Would you expect that pension to grow at a certain annual rate?
A pensions manager could sweet talk you into any type of projection. Your Pension Pot could grow at 5%, 8%, or even a healthy 10% per annum.
You need to bear in mind that markets do fluctuate. They don't always go up. The overall trend is up, but in between there are downturns. Your manged fund may increase 12% one year only to go down 6% the next. Giving you only a modest increase over the two years.
Of course, your Pension is for a lot longer than two years. It's right up until you decide to take Drawdown. So ... depending on when you start saving for your retirement and when you decide to retire, will determine the size of your pot.
We here, at Common Sense Retirement Investing believe that doubling your pot every 5 years is more than possible.
Ask any pension manager if he can match that and you'll proabably get a very conservative answer.
O.K. so maybe you're convinced that managing your own SIPP is the way to go, what do you need?
First up, you need to find for yourself a SIPP provider. These are present in abundance and your choice will be critical in your future success.
There are big ones, small ones, cheap ones, not so cheap ones, other available on the high street, others hard-to-find. The choice is staggering. But ...
... you have to choose.
We have done a lot of spade work for you and whittled down the plethora of DIY Pension Providers to just ten.
Go to: Stock Trading Platforms.
This is no time for you to rush. Take your time in choosing. We keep arping on about doing your own due diligence. And, yes, you have to. Ask around. Talk to people you know and trust. Send for brochures. Pick up the phone.
Just for the record, here is our list of the ten DIY Pension providers:
AJ Bell YouInvest
Charles Stanley Direct
Halifax Share DEalig
The Share Centre
We have tried to be consistent in our comparion of the various DIY Pension Providers.
We have listed the same set of charges for each provider - so you can see a direct comparion.
We have listed for each, the following criteria:
Shares, Trusts, and Funds deling done online
Regular income payments
Uncrystallised funds pension lum sum (per payment)
Transfer out (cash)
Transfer out (stocks)
Take a look at the various platforms, take your time, then decide.
All the ten DIY Pensions Providers listed offer excellent support.
Some, but not all, provide an app for those investors wanting to trade "on the move"
All of them provide an online dealing service done through a web-based dashboard which you can easily access online via your username and password.
Gone are those days that you need to phone up to place an order. We are in the Twenty-First Century now.
All providers will offer you investment advice, but trust us when we say that your own advice is as good as, or much, much better than theirs. It's true.
Even if you contribute to a work pension, it is still a good idea to salt away more for your retirement.
We are already there. We've been retired for some time. And believe us when we say that we wish we had saved more. Sure, we're comfortable, but we could have (and perhaps should have) done a lot, lot better.
Don't be complacent. Get signed up for a DIY Pension right away.
We promise you. You'll be glad that you did.
Chris and Clem Meet Up - hopefully, the last time before lockdown easing
Chris and Clem Meet Up - at last! They can meet in the beer garden
Chris and Clem Meet Up and it is Chris' turn to do most of the talking. Chris' little windfall has allowed him to widen his portfolio. Chris vows of more.