A SIPP is a self invested personal pension, and differs in many ways from other pension schemes available. Offered by companies like Bestinvest, SIPPs have many benefits which make them attractive to those looking for a potentially more lucrative scheme, and are particularly effective for those on higher incomes. Here is some information to help you further understand the benefits of SIPPs.
More Investment Choice
One of the most important points to make about SIPPs is that they offer the ability to invest your money in a variety of different assets such as trusts, shares and property, amongst many others. You can therefore decide how much risk you wish to take and which assets will provide the best returns for your money.
If you decide to take charge of your own investments then you will have a low cost SIPP as you do not have the pay fees for investment advice, which you would if you have a full SIPP. A low cost SIPP, however, does require good research and willingness to manage investments.
Greater Potential Returns
Since you have a wider choice over where you put your money, you can see better returns over the long term if your asset portfolio appreciates. The rate this rises (or falls) by is dependent on how risky your investment is. Some markets are more volatile than others, and some are better suited to short term investments rather than long term.
It is wise to diversify your portfolio so that your investments are not dependent on the value of a single asset rising. This reduces overall risk and makes a healthy profit far more likely come retirement.
One of the reasons SIPPs are particularly effective for those on higher incomes is that, like all pensions, they offer greater tax relief the higher up the income tax ladder you are. Even those on the basic tax rate receive 20% back from the tax man when they invest.
This means that you take home far more money from investments than you would without such high tax relief. The ability to start withdrawing your money becomes available when you become 55, and you can choose exactly how to take an income from your pension.
SIPPs are a good option for those who want a bit more control over their investments. Whilst greater choice also means greater potential risk, the possibility of much larger returns and superior tax benefits make SIPPs stand out as an effective pension scheme.