Flexible contributions and employer options
SIPPs provide flexibility in how and when you make contributions. Deposits can be made as lump sums or monthly, usually via direct debit. Some employers might also offer the option to contribute to your SIPP. If you’re already saving into a Workplace Pension, it’s generally best to maximise your employer’s contributions to that scheme first before considering additional savings in a SIPP.
It’s important to recognise that pensions, including SIPPs, are long-term savings options; you cannot access your money until you reach retirement age. Currently, the minimum age for accessing pension savings is 55, but this will rise to 57 on 6 April 2028. Therefore, while flexibility is a key feature of SIPPs, planning ahead is crucial to ensure they fit with your wider financial plans.
Options for accessing your pot
Once you reach retirement age, you have several options for accessing your SIPP savings. Typically, the first 25% of your fund can be withdrawn tax-free, while the remaining amount is taxable under current regulations. You can choose to withdraw lump sums as needed, purchase a guaranteed lifetime income through an annuity or leave your money invested while using a drawdown facility to receive income gradually.
For those who favour financial security over investment risk, annuities offer peace of mind. They can be tailored to suit your circumstances, such as providing a spouse’s pension after death or higher rates for individuals with certain health conditions. Equally important, it’s prudent to compare the best annuity rates available.
Should you consolidate your pensions?
If you have held multiple jobs over the years, it’s likely you’ve accumulated a variety of pension schemes. SIPPs can be an excellent way to consolidate these into a single, more modern and flexible account. Defined contribution pensions, such as personal pensions, can often be easily transferred into a SIPP. This simplifies management and offers better oversight of your retirement plans.
However, it is important to exercise caution when transferring pensions. Some schemes offer ‘safeguarded benefits’, such as defined benefit pensions or guaranteed annuity rates, which are usually best left unchanged. If you are considering making a transfer, regulated financial advice is generally required for pensions with such features.
Smart investment strategies
When planning for retirement, your strategy should be guided by your timeline and risk appetite. If you’re still some way from retiring, adopting a more growth-oriented approach, often involving equities, might be advantageous. Regular contributions to your fund can also benefit from pound-cost averaging, a method that helps to reduce the impact of price fluctuations over time.
Conversely, if you are nearing access to your SIPP, it is sensible to adopt a more cautious approach. Market fluctuations can considerably affect your savings if you intend to withdraw lump sums or purchase an annuity soon. Choosing lower-risk investment options can help maintain the value of your fund as you reach this critical stage.
This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice. The value of your investments can go down as well as up, and you may get back less than you invested.
A pension is a long-term investment not normally accessible until age 55 (57 from april 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.
