Are you in control of your investments?

There are numerous ways of saving for retirement, including various types of pensions. The government views retirement savings as being so important that it offers generous tax benefits to encourage us to make our own pension provision. It is usually also the case that you may be able to contribute to more than one pension – for example, if appropriate, you could contribute to a Self-Invested Personal Pension (SIPP) as well as to your company pension scheme.

Pension wrapper
A SIPP is essentially a pension wrapper, capable of holding investments and providing the same tax advantages as other personal pension plans, that allows you to take a more active involvement in your retirement planning. SIPPs are not appropriate for small investment sums.

You can generally choose from a number of different investments, unlike some other traditional pension schemes that can be more restrictive, and this can give you greater choice over where your money is invested.

It may also be possible to transfer-in other pensions into your SIPP, which could allow you to consolidate and bring together your retirement savings. This may make it simpler for you to manage your investment portfolio and perhaps make regular investment reviews easier.

Tax relief 
SIPP investors also receive tax relief on their contributions. So you could potentially benefit from between 20 per cent to 50 per cent tax relief depending upon your own circumstances.

Like some investments in other pensions, any returns from investments within a SIPP are free of income and capital gains tax. However, unlike dividend payments received outside a SIPP, there is no 10 per cent tax credit applied to dividend payments within a SIPP.

Tax advantages
This is a long-term savings vehicle with certain tax advantages, but you should be prepared to commit to having your money tied up until at least age 55. There are various options for taking benefits from your SIPP that you should be aware of. You can receive up to 25 per cent of the pension fund value as a tax-free lump sum (subject to certain limits); the remaining benefits can be taken gradually as an income or as additional lump sums, both of which are subject to your tax rate at that time, although this is potentially a lower tax rate than the one that you currently pay, depending on your circumstances at the time.

Compound growth
UK pension fund investments grow free of income tax and capital gains tax, which allows funds to accumulate faster than taxed alternatives and benefit considerably over the longer term due to the effects of compounding of growth.

Where tax has been deducted at source on income within a pension fund – such as rents, coupons and interest – this is reclaimed by the pension provider and the tax credited back into the pension fund.

Not subject to tax declaration
Assets held within the pension fund that carry no tax at source, such as offshore investments and government gilts, are not subject to tax declaration or payments.

If you are an experienced investor, then managing your own pension investments may be for you. However, you need to be comfortable that you have the skill and experience to make your own investment decisions and have sufficient time to monitor investment performance. So you can either take control of your investments or pay someone to do it for you. If you pay, your costs will increase for this facility.

Managing your investments 
There are a number of considerations you need to be aware of, for example, you cannot draw on a SIPP pension before age 55 and there are usually additional costs involved when investing. You’ll also need to be mindful of the fact that you may need to spend time managing your investments. Where an investment is made in commercial property, there could be periods without any rental income and in some cases the pension fund may need to sell on the property when the market is not at its strongest. SIPPs also charge higher costs than a stakeholder and you may pay two sets of management fees for the wrapper and the underlying investments.

A pension is a long-term investment. The fund value may fluctuate and can go down as well as up. You may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.