A SIPP is a type of pension called a ‘defined contribution pension’ that allows you access to a wider choice of investments when it comes to saving for your retirement. It works in a similar way to a standard personal pension. The main difference is that with a SIPP ‘wrapper’, you have more flexibility with the investments you can choose.
The new pension freedoms introduced in 2015 mean that from age 55 (increasing to 57 from 2028), you can take money out of your pension, normally 25% of which is tax-free and the rest being taken as income, which will be subject to Income Tax. You can choose what investments you want to put your savings into, and keep control of your savings. A SIPP can also be suitable if you want
to consolidate all of your pensions into one pot before you retire, or if you want to keep your money invested after you retire so that you can draw down an income from it.
A SIPP benefits from the normal tax relief available to pensions. To add £100 to your pension, you pay in £80, and HM Revenue & Customs will add basic rate tax relief at 20%. If you pay higher or top-rate tax, you can claim back the remaining tax relief through your tax return, meaning you can benefit from up to 45% tax relief. If you own commercial premises, SIPPs can offer valuable tax relief.