Self Invested Personal Pensions (or SIPPs) are one form of Individual Pension approved by the UK Government and permit the owner to make his, or her, own investment decisions.
There are a whole range of allowable invesments 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!
Self Invested Personal Pensions (SIPPs) can easily outperform managed funds because of at least three criteria:
1. There are considerable tax advantages of Self Invested Personal Pensions.
Your contribution to SIPPs are tax deductable at your basic rate of tax. For example: if you are a 20% basic rate taxpayer and you contribute £80 per month to your Self Invested Personal Pension, the UK Governmet will top that up to £100.
And the same goes, pro-rata, if you are a higher rate tax payer. i.e. for a 40% tax rate your contribution for £100 of benefit would be £60.
Furthermore, and we think this is a massive tax benefit, when you come to realise your pension at whatever you choose (between aged 55 ad 75) you are allowed to take 25% of your built up Pension Pot TAX FREE.
For example: if your Pension Pot come retirement is, say, £600,000 you would be allowed to take £150,000 as a tax free lump sum. The remainder of your Pension Pot, would, of course, be taxable at your standed rate of tax.
2. Charges are considerably less than with a managed Pension Plan.
Self Invested Personal Pensions have to be administered. And the company that provides you with this "Platform" is known as a SIPP Provider, it's where you make your trades and it's all done online. No need for phone calls etc.
In return for providing these facilities, your SIPP Provider makes charges, some more than others. Our guide on Stock Trading Platforms would be your guide here in deciding which provider would be best suited to your needs.
3. By following the techniques of Warren Buffett, as outlined in Common Sense Retirement Investing, you will achieve superior returns on your investments.
We believe that if you follow the investment philosophy of Warren Buffett and Charlie Munger, as outlined on this website, you will grow your Pension Pot to its maximum potential value.
The philosophy is get rich in the long term, not trying to make a quick buck here and there. Pensions are for investing. They are not for speculating.
Self Invested Personal Pensions are 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 benefits. 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 SIPP 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 SIPP 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 SIPP 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 SIPP 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 Self Invested Personal Pension right away.
We promise you. You'll be glad that you did.