Self-Invested Personal Pension (SIPP) — What Is It and How Does It Work?

If you want to build your wealth for retirement, one of the most effective ways is through a self-invested personal pension (SIPP). As an investor, you might be wondering what an SIPP is, how it works, and why you should consider it as an option for your finances.Read on, to find the answers to these questions, where we explore how SIPPs can benefit your retirement.

For more expert advice on investing in an SIPP, consult your modern wealth management service – such as Netwealth financial advisers, for example.

What is SIPP?

An SIPP is a form of personal pension, that allows you to grow your savings in your pension pot for retirement, and build your wealth effectively to achieve your future financial goals.

SIPPs work in a similar way to your standard personal pensions, in the way that they allow you to contribute your own money into your pensions. This money is then invested to help you grow your pension with potentially successful investments.

The main difference when it comes to an SIPP, is that you have more flexibility in the type of investments you can have with your pension. On top of that, you can manage these investments directly yourself or have an expert financial adviser to manage them on your behalf.

How does your SIPP work?

Your SIPP can allow you to contribute money into your pension pot as you see appropriate, and you can just contribute regularly or as lump sums when you choose.

It’s important to also be aware of the tax rules that might apply to your SIPP, such as the annual pension allowance – the maximum amount you can contribute each year whilst sheltering your money from tax. As of the current tax year 2023/2024, this is £60,000.

You can then have the option to explore a range of investment types for your pension, whether you manage this yourself or discuss and arrange it with your wealth manager.

This can include investments such as:

Collective investment funds
Company shares, both UK and overseas
Investment trusts
Property and land

As an investor, you will likely want to find the right balance of risk and potential returns with your investments, in order to grow your wealth as efficiently as possible for your retirement.

With an effective approach to your SIPP, and an expert adviser to guide you, you can have the highest chance of a successful financial outcome when you retire.

What are the benefits of an SIPP?

There are various benefits to choosing an SIPP with a professional wealth management service, including things such as:

Tailored advice and guidance

When you choose an SIPP with an expert wealth management service, you can receive tailored advice on how best to approach your retirement.

This not only incorporates your investments but also your own individual goals. This way, your adviser can help you invest in the right way to reach all your retirement goals, whilst also making sure you only invest what’s appropriate for your financial situation.

Optimised investments

Your wealth manager can also help you optimise your investments with specific portfolios for your unique financial situation.

They can offer you a range of portfolios that provide the right balance of risk and potential rewards. This can help you grow your wealth more effectively for retirement, whilst also protecting your wealth from unsuitable levels of investment risk.

Easy tracking and management

Your wealth management service can also provide an easy way of tracking and managing your investments.

With powerful online tools, you can easily make changes to your investments – including the amount you contribute, risk levels, and the type of investments you make in the markets.

You can also transfer and consolidate your pensions to your new SIPP provider more seamlessly. Expert wealth managers can often handle the bulk of it for you, and allow you to start saving in your new SIPP as efficiently as possible.

Now you have a better understanding of SIPPs, make sure you consult your modern wealth manager to devise the right approach to building your wealth for retirement, with your own SIPP.

Please note, the value of your investments can go down as well as up.