SIPP: what does it mean and when to activate it

SIPP means self- invested pension plan and it is a simple and interesting way to save money for the future.

In particular it is targeted for the retirement period, so after you reach 55 years of age. To be clear, it is an opportunity for those who want to have a better life after the retirement. Today everyone can open a SIPP, simply choosing a company that provides this investing tool. Some of this companies make their customers also transfer their own pension in the SIPP in order to get more value from it.
Let’s learn more about SIPP by understanding what it is and how it works.


What is a SIPP

It is a private pension which allows you to take every investment decision until retirement. This can change in a substantial way your future pension, because having a greater monthly income could allow you to retire earlier. In a self-invested pension plan, every single person can make his own decisions on investments; this means that there is also a risk to rise or fall the value of the set aside funds. Some of the companies that offer SIPP plans also give to their customers a personal investment consultant, who can be contacted by mail, phone or also meet in person. This is meant to help everyone that has a SIPP, by providing them assistance in order to get high income in the future and better investments in the meantime.

Who can have a SIPP

Almost everyone can have a self-invested pension plan. For example, a young person can activate his plan with a little monthly payment, that can be stopped or modified over the years. Some plans can bring together your old pensions, free of charge, but this is not mandatory. One can decide to make the transfer later on, to invest more or to have a better management of the whole thing. A self-employed person can open a SIPP, just as any other employee.

How to begin a SIPP

Beginning a new self-invested pension plan is simple, you begin by choosing one investing company that offers this type of pension. Today you can also open your new SIPP completely online, filling some simple form on the web. In order to do that is important to activate an account on the site of the company you have chosen; you will answer some questions to create your investor profile. Generally, this involves the knowledge of your goals, the risk you can take and what you want to achieve; staying clear about the fact that the more one wants to get, the more risk he as to bear. When you are ready, you can decide to transfer in the new SIPP your existing pension.

Why is important to have a SIPP

A private pension is important for those who like to have control of their savings.  This method allows you to take complete control of the funds you are setting aside for your older age. Moreover, the SIPP helps having a better income during the retirement period. Not only because of better investments; these plans have pledge also some tax benefits. Moreover, it is a flexible investment, so you can modify it whenever you want to. This means that you can grow or lower the amount accumulate every month too, according to your needs.

Tax benefits

Tax benefits on SIPP are related to existing laws, that can be modified from time to time. In addition, the country you live in can have different laws from the others. Generally speaking, SIPP invested funds are free from income TAX and from Capital Gains Tax. The investor receives 20% tax bonus on fund used for a SIPP; higher rate taxpayers can have 25% more of tax relief.

When you receive some pay-out

At present day the age for retirement in UK is 55; it will be 58 after 2028. When a SIPP contributor reaches the retirement age, he (or she) can withdraw up to 25% of SIPP fund and begins to receive some pay-outs. The amount received monthly varies accordingly to the amount reached over the years.