The major advantage of a sipp is that they offer greater flexibility and control as well as increased tax benefits and possible lower costs than most traditional pension plans. Recent changes in legislation mean that sipps are no longer solely directed at those on a higher income and can additionally be managed alongside a traditional pension scheme.
When originally introduced sipps were aimed at those with pension funds over £200,000, however in recent years even those who have no source of income can still contribute up to £3,600 a year into a sipp. Sipps are most beneficial to those who have a number of pension schemes and want to bring these retirement plans, plus any investments together in one easily manageable pension wrapper. A sipp may also be appropriate if you are self-employed or if you’re current employer does not have a pension scheme.
Additionally sipps will also be of benefit if you are looking for; increased freedom to invest in a wider range of investment options, more flexibility on when you start to draw your pension and how you choose to take this income and finally a far greater choice of pension benefits for your dependants or spouse when you die.
With a sipp a 25% income tax free lump sum is able to be withdrawn and the remainder is available to buy an annuity or if you are able to live on a reduced income for income drawdown. Income draw down is generally only suitable if you have existing assets to live off or if you have a pension pot of greater than £100,000. Any of the funds that you don’t use to provide benefits continues to be invested in any way that you see fit, though it should be noted this may provide uncertainty for future income.
As with any investment independent advice should be required before moving ahead.