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Your SIPP questions answered

Finding SIPPs (Self-Invested Personal Pensions) confusing? We’re answering five commonly asked questions to help you understand how SIPPs work.
Your SIPP questions answered
Reading time: 5 mins

If you’re looking to give your retirement pot a boost, paying into a personal pension or a SIPP (Self-Invested Personal Pensions) could help. But how does it work? We’re answering five frequently asked questions to help you get familiar with the world of SIPPs.


What is a SIPP?
A SIPP is a type of personal pension that allows you to take control of your retirement. Not only can you choose how much you want to contribute, you can also get your money invested in a large range of investments, such as shares, bonds, and property. Even better, with a SIPP or personal pension, you’ll get a little gift from the government in the form of tax relief.


How much tax relief will I get?
If you pay into a SIPP or personal pension, you’ll get a 25% top up. That means, for every £100 investment in your pot, you’ll only need to contribute £80 since the government will add the rest. If you’re a higher or an additional rate taxpayer, you could expect to receive a higher top up. One thing to keep in mind, if you’re a higher or additional rate taxpayer, is that you’ll need to contact HMRC to claim the extra top up.


How much can I put in a SIPP?
Each year, you can invest as much as you want to, but the amount you get tax relief on is limited to £40,000 in your SIPP, or 100% of your earning (whichever is lower) – this pension allowance is the combined contributions made by you and the government. If your personal pension exceeds this limit, you may need to pay tax on the extra money. Say you earn £60,000 a year and decide to put this amount in your pension, you’ll only get tax relief on £40,000 and the rest may be taxed. On the other hand, if you don’t have any UK earnings, you’ll still be able to pay into your SIPP, but the allowance will be lower - currently, you’ll only be able to contribute up to £3,600 a year (including tax relief). Also, if you can’t use your full SIPP allowance, you may have the possibility to carry it from the three previous years, as long as you meet the two following requirements. Your earnings will need to be at least equal to the total amount of your contributions, and you’ll need to be a member of a registered pension scheme.


When can I take my pension money?
If you have a SIPP, you’ll be allowed to take your money out once you turn 55. And, not only will you have the possibility to withdraw funds, you’ll also be able to take out up to 25% of your money as a tax-free lump sum. But remember, the longer you keep your money invested, the more likely you are to see positive growth. The way you withdraw your money will depend on the type of pension you’ve got. Some pensions will pay out a specific income for life which will increase each year – they’re known as ‘defined benefit pensions.’ Other pensions are ‘defined contributions schemes’ and they’ll let you choose how you want to take your money out. You’ll have the options to either withdraw your whole pension as a lump sum in one go, take out lump sums when you need them, or receive a regular income based on pot size.


How can I open a SIPP?
Opening a SIPP has never been easier! With digital investing platforms, like Wealthify, you can get started in just a few taps. All you need to do is choose how much you want to invest and the risk level that suits you. With Wealthify, you can open a personal pension with just £50, and you’ll get an experienced team of investors who’ll do the hard work for you, from picking your investments to adjusting your Plan, when needed, to keep it on track. And that’s not all! Every time you make contributions to your Wealthify Pension, we’ll automatically add the government’s top up. If you want to do your part for the environment and society, you’ll have the possibility to open an ethical pension. It’s easy. You just need to switch the ‘ethical toggle on and your pension money will be invested in companies that are committed to making a positive difference.

Want to know how much money you could have when you retire? Our pension calculator can help give you a good idea of what your yearly or monthly income could be. Why not have a play with the figures to see how much of an impact little changes can make? Try it here: wealthify.com/pension-calculator


The tax treatment depends on your individual circumstances and may be subject to change in the future.


Please remember the value of your investments can go down as well as up, and you could get back less than invested.


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