People looking at their pensions options may consider setting up a SIPP (self-invested personal pension) as the bespoke pensions wrapper has several benefits.
Caitlin Southall, pension technical manager at Curtis Banks, told Express.co.uk: “An SIPP offers a great opportunity for consolidating multiple pensions into one place.
“Due to the breadth of investment opportunities available with a SIPP, individuals can use their consolidated pension to change investment strategies as needed as they go through the ‘building’ stage of their pension through to retirement and beyond, without needing to change product.”
She said a key advantage of the scheme is the flexibility it offers with how the investment works.
A person can choose to invest in a range of listed and unlisted stocks and shares, as well as unit trusts, cash, open-ended investment companies, gold bullion and commercial property.
Explaining how they work, Ms Southall said: “Once the SIPP is set up, it is a pension tax wrapper that you put your chosen investments inside, like an ISA.
“There are a number of different types of investments you can choose from as a SIPP is more flexible than a normal pension.”
“These can include listed and unlisted stocks and shares, gold bullion or commercial property.
“There are differences between providers, some accept applications directly from customers; others may need a financial adviser to apply on your behalf.”
However, SIPPs may not be suitable for all pension savers. Daniel Bowen, senior wealth planner at Tees, told Express.co.uk: “SIPPs are not for everyone.
“They are more popular with DIY investors who are looking to wider investment options, and advisors looking to more sophisticated investment strategies for their clients.”
Mr Bowen said business owners often use SIPPs to hold their commercial business premises.
He added: “If you are unsure as to the right investment for you, then you can seek advice from an independent financial advisor.”
Mr Southall said: “The self-employed are less likely to save into a pension. However, there are lots of benefits in having a SIPP when it comes to business owners.
“Employers can made contributions directly into a SIPP, which has the benefit of reducing corporation tax (as contributions would be made from trading profits) and the pension fund grows ready for investment or retirement.”
In setting up a SIPP, the individual can also arrange when they would look to draw down from the pension once they reach the pension age, which is currently 55.
Ms Southall explained: “When it comes to accessing the pension, there are various options available with SIPPs.
“You are able to take 25 percent of the SIPP fund tax free once you reach 55, subject to certain conditions.
“Taking tax free cash would have an impact on the remainder of the pension, so an important decision to get right.
“As with other pensions, for any contributions you make the government pays in tax relief at 20 percent. If you pay a higher rate of tax, you can usually claim additional relief through your tax return.”
SIPPs like other pension funds are also generally not considered part of a person’s estate for inheritance tax purposes, so can be a good way for a person to pass on wealth to their family.
For the latest personal finance news, follow us on Twitter at @ExpressMoney_.
