A SIPP is a Self Invested Personal Pension.
Pensions are notoriously complex and for many, confusing, which means that many people, put off making decisions about their retirement.
If you already have a pension, chances are you're not sure how much is in it, or how much income it will pay you on retirement.
With a tradional pension, you have no real involvement other than in making the contributions. However, with a SIPP, you manage your own pension, making the decisions as to when and where you invest.
You can know the value of your retirement fund at any moment and this puts the control of your retirement fund back into your hands.
Most type of pension funds can be transferred into a SIPP such as Final Salary pensions, Personal Pensions, Protected Rights funds (also known as contracted out of SERPS funds). You can also make personal contributions on a regular or lump sum basis.
 Tax Advantages Of A SIPP?
Pensions such as a SIPP are the most tax efficient way of saving for retirement.
One of the key advantages is that you get tax relief on your contributions based upon the rate of income tax that you pay. Plus, you have no tax to pay on any dividends, income or capital gains earned on the investments in the SIPP.
For example, if you're a higher-rate taxpayer at 40%, and you invest £8,000 into a SIPP, the government would pay 20% tax relief into the fund ie £2,000 - giving you a gross amount in your SIPP of £10,000. In addition you could claim a further 20% ie £2,000 as tax relief via your tax return. So the £10,000 invested in your SIPP has cost you £6,000 net.
If you pay tax at 50% (income over £150,000pa) you would get tax relief at 50% on your pension contributions. Tax relief is currently on contributions up to a maximum of £55,000pa.
Another benefit of a SIPP, is that you can take a 25% tax free lump sum at retirement if you wish, although this would potentially reduce your income during retirement).
In comparison, if you make investments outside of a SIPP or other pension, you will be investing money you have earned net of tax, and would have to pay further tax on income or capital gain.
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