retirement Archives

Why Choose SIPPs? The Advantages of Personal Pensions

Posted on 6 April 202328 March 2025 by Sophie Soraf

If you want a flexible and straightforward way to save for your retirement that puts you in the driving seat, a self-invested personal pension, or SIPP, might be appropriate. Here, we explain how a SIPP works so that you can consider whether it could be the right pension plan for you.

What is a SIPP?

A SIPP (Self Invested Personal Pension) is a type of personal pension that gives you the freedom to choose and manage your own investments, allowing you to make decisions that determine how your pension pot performs. A SIPP acts as a wrapper that can hold a number of different investments and is invested until you want to make withdrawals when you retire.

You can also choose to transfer in existing pensions, but it’s important to check whether you will be charged transfer fees for doing so. If the fees are high, it’s generally best to leave your existing pensions where they are.

What are the tax benefits?

SIPPs work in a similar way to other types of pension in that you can pay into them whenever you want and they enjoy the same generous tax perks. This means that for every contribution you make, the government will give you 20% tax relief. So, if you paid in £100, this would effectively be topped up to £125. This basic-rate tax relief is added to your pension automatically as your provider will claim it for you from the government.

Higher-rate taxpayers (40%) can claim up to a further 20% in tax relief through their tax return, while additional-rate taxpayers (45%) can claim up to a further 25%.

Are there any limits on SIPP contributions?

You can pay as much as you like into your pension, but there is a limit on the amount of tax relief you can claim. Most people get tax relief on pension contributions up to 100% of their salary each tax year, capped at the Annual Allowance of £60,000 (for the 2023/24 tax year). This limit includes the total value of all contributions, including those from your employer and the addition of basic-rate tax relief.

If you do not earn enough to pay Income Tax, you can pay a maximum of £2,880 a year into your pension and still benefit from basic-rate tax relief, which boosts your total contribution to £3,600 per tax year.

Once you have used up the current year’s Annual Allowance, you may be able to carry over unused allowances from the past three years, providing you were a pension scheme member during those years and your total contribution does not exceed 100% of your current year’s earnings.

A Tapered Annual Allowance was introduced in 2016-17 which currently applies for individuals with a ‘threshold income’ of over £200,000 and ‘adjusted income’ of over £260,000.

Why should I choose a SIPP over other pension arrangements?

The biggest benefit of a SIPP is that, unlike other pension plans, you can choose from a much wider range of investments, which could have significant growth potential. You can also have complete flexibility and control over your investment portfolio.

In addition, SIPPs are portable, so if you change your job or stop working you can continue to contribute to your pension. If you have a new employer, they can decide to make contributions too.

However, with this flexibility comes responsibility so it’s important to research your options carefully and make sure you are comfortable making your own retirement decisions. The value of your investments can go down as well as up which means you could get back less than you put in.

What types of investment can I have?

With a SIPP, you can invest in a wide range of assets, such as:

Stocks and shares
Unit trusts
Open ended investment companies (OEICs)
UK government bonds
Gilts and bonds
Exchange traded funds (ETFs)
Offshore funds
Commercial property
Cash

SIPPs allow you to pick your own individual investments or choose a ready-made portfolio based on your investment goals and attitude to risk. By picking your own investments, it’s important to ensure you spread risk by choosing a variety of investments across a range of assets, regions and sectors.

How can I take money out of my SIPP?

You can usually start to take money from your pension from the age of 55 (rising to 57 in 2028). You can take up to 25% of your pension pot tax-free and you’ll be taxed on the remainder as if it were income. You can choose to receive your tax-free cash as a single lump sum or in stages.

You can take money from a SIPP in three main ways and you can choose just one option or a combination:

An annuity: This pays a guaranteed income for life and you can choose whether your income remains the same throughout your retirement, increases by a fixed percentage each year or increases with inflation.
Drawdown: This enables you to take your tax-free cash and leave the rest of your pension invested. You can make further withdrawals as and when you need to.
Lump sum: Known as Uncrystallised Funds Pension Lumps Sums (UFPLS), this allows you to take money directly from your SIPP without choosing drawdown. Every time you do so, 25% is usually tax-free and the rest is taxed as income.

How we can help

SIPPs give you much greater flexibility than other types of pension, but they won’t be suitable for everyone. If you’re not sure whether a SIPP is right for you, our expert pension advisers are on hand to discuss your options and help you make the right investment choices.

They will assess important factors such as your attitude to risk, investment perspective and tax position to help you make the best retirement decisions for you. Why not get in touch today?

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Past performance is not a reliable indicator of future returns and all investments involve risks including the risk of possible loss of capital. Some information quoted was obtained from external sources we consider to be reliable.

Tees is a trading name of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered number 211314. Tees Financial Limited is registered in England and Wales. Registered number 4342506.

Pension planning during times of uncertainty

Posted on 9 January 202328 March 2025 by Sophie Soraf

There have been various difficulties in recent years, affecting the UK economy that have had an impact on pension savers. These include Brexit, the COVID-19 pandemic, the conflict between Russia and Ukraine as well as political instability in Westminster. These events have caused turbulence in the markets, leading to a decline in share prices and other investments. If you have a workplace pension or a personal pension you may have noticed that its value has decreased as a result. While this can be concerning, it is important to remember that it is a temporary setback and there are ways to weather the storm.

What should I do about my pension if I see the value dropping?

Even though these are unprecedented times, as an investor, it’s useful to put any short-term volatility into historical context, to get the bigger picture, rather than focusing too intently on short-term events and market fluctuations.

Market analysts and investors aren’t infallible, they become nervous in uncertain times. This is because the loss of trade and tourism can pose a threat to companies of any size. So, it’s little wonder that stock markets have fallen and you are likely to have seen a drop in the value of your pension pot over the course of the last few years.

However, it’s worth remembering that the recent falls have come after some very strong rises in recent years. Also, your pension pot is unlikely to be invested solely in equities, so a 5% fall in the market does not necessarily equate to a 5% fall in the total value of your pension fund. In fact, the typical pension pot will contain a broad range of assets, which have been identified to fit in line with your attitude to risk, personal objectives and time frames.

A typical pension fund contains around 60%-65% in shares, with the rest in government and corporate bonds, property and cash. In contrast to equities, government bonds have actually increased in value during the crisis.

Will my pension pot ever recover?

Investment requires a disciplined approach and a degree of holding your nerve if markets fall. Experienced long-term investors know that the worst investment strategy you can adopt is to jump in and out of the stock market, to panic when prices fall and to sell investments at the bottom of the market.

The importance of keeping to your long-term plan is evident by studying the performance of the FTSE 100 over the last 20 years or so. Back in the autumn of 1998, the FTSE 100 fell by 1,000 points, amidst an environment of high-interest rates and other threats to UK economic growth. However, it had almost fully recovered by the end of 1998 and the index soared close to 7,000 in 1999. A global slowdown brought it back down to around 3,600 in the spring of 2003, before taking another five years to climb back to around 6,500. Then, the global financial crisis happened and the index was back at 3,500 in March 2009. After a long haul back, the index was at over 7,000 in January 2020 before the pandemic affected global markets.

Over the last 20 years, despite a variety of market shocks and rebounds, the index still has a long-term growth trend. It’s important to remember that some market volatility is inevitable. Markets will always move up and down, but it’s important to stick to your long-term plan.

Is now a good time to top up my pension?

Providing you are investing for the long term, you may wish to consider investing more into your pension pot. Even a small increase in contributions could make a difference to your final pension pot if it benefits from an upturn in the market and makes up for recent losses.

Remember that whatever type of pension plan you hold, you get tax relief at the highest rate of Income Tax you pay, on all contributions you make, subject to annual and lifetime allowances. This effectively means that some of your earnings which would have gone to the Government as tax are diverted to boost your pension pot instead.

You receive ‘relief at source’ if you pay money into your personal pension yourself or if your workplace pension contributions are taken directly from your pay packet. In both circumstances, you automatically receive 20% tax back from the Government in the form of an additional deposit into your pension pot. So, for instance, if you’re a basic-rate taxpayer investing £800 of your take-home pay into your pension, the tax relief would amount to £200. Effectively the taxman tops up your £800 contribution to £1,000.

How do I make sure my pension is protected?

As well as taking a long-term view of your pension, regular reviews are essential to ensure you remain on track with your well-defined plan, in accordance with your objectives and attitude to risk. If there have been any changes in your objectives or circumstances, it is particularly important to review and make any adjustments where needed.

When investing, you have to decide how much risk is right for you. Successfully achieving your long-term goals requires a balance between risk and reward, so you can construct a diversified portfolio with the potential to improve returns that matches your elected level of risk. While a diversified portfolio should incorporate strategies to help reduce risk, it cannot be eliminated altogether. The process of building such a portfolio is very difficult to achieve without professional advice.

Can I get advice about my pension?

In these uncertain times, more than ever, it’s important to take professional independent financial advice, from someone who will help you to make the right financial decisions and identify and meet your goals and aspirations. Research shows that those who take advice are likely to accumulate more wealth, supported by increased savings and investments in equities. Also, those in retirement are likely to have more income, particularly at older ages.

What is pension drawdown and how does it work?

Posted on 12 January 202130 March 2025 by Sophie Soraf

Pension (or income) drawdown is one of the ways you can use your pension pot to provide a regular income when you reach retirement. Drawdown is a flexible way of accessing your pension, while allowing your pension fund to keep growing. Here, we explain exactly how drawdown works and whether it’s right for you.

Pension drawdown is available to those aged 55 or over (increasing to age 57 in 2028) and enables you to take an income from your pension pot while leaving your remaining pension savings invested.

You can choose to move your pension into drawdown in one go or a little at a time. You may be able to do this with your current provider or by transferring your pension to a drawdown provider elsewhere. If you decide to transfer, it’s important to first check you won’t lose any valuable benefits or be charged high exit fees.

Under rules introduced in April 2015, you can take up to 25% of your pension pot you use for drawdown as tax-free cash – you can take this in one go or each time you move part of your pension into drawdown. Further withdrawals can then be made as and when you choose, whether you do this in one go, take regular monthly payments, or withdraw lump sum payments as and when you need them.

Drawdown allowances and tax rules

The first 25% you take of your pension pot will be tax-free, while the remaining 75% will be subject to Income Tax. How much you pay will depend on your total income for the year and your tax rate. For 2020/21 this means:

if you have no other income, no tax will be due on the first £12,500
on income between £12,501 and £50,000 you’ll pay tax at 20%
on income between £50,0001 and £150,000 you’ll pay tax at 40%
on income over £150,000, you will pay tax at 45%.

What are the benefits of drawdown?

One of the biggest advantages to drawdown is the flexibility it offers. Not only does it enable you to take money from your pension savings whenever you need it, there’s no limit on the number of withdrawals you can make, and you can take out different sums each year.

At the same time, the remainder of your pension pot can stay invested which means if your investments perform well, your income could grow throughout retirement. Drawdown gives you the option of being able to choose your own investments, use ready-made portfolios or let an adviser choose on your behalf.

What are the downsides?

It’s important to understand that it’s your responsibility to ensure your retirement income lasts the duration of your retirement and to understand that the more you withdraw from your pension pot, the quicker it will be depleted. If you make withdrawals too frequently, your retirement income could run out earlier than expected.

Consider, too, that large withdrawals can push you into a higher tax band and, as soon as you withdraw more than your 25% tax-free lump sum, the Money Purchase Annual Allowance (MPAA) applies which limits the amount that be contributed to your pension to £4,000 per year.

Additionally, there’s no guarantee that your investments will continue to grow which means you could get back less than you invest.

Buying an annuity is still appropriate for many people in retirement as it allows you to use your pension savings to buy a guaranteed income that lasts the rest of your life. If you prefer, you can use part of your pension savings to buy an annuity and leave the remainder in drawdown.

How to manage drawdown funds during retirement

If you’re considering drawdown, it’s important to plan carefully, taking into account how long you need your pension to last – remember that your retirement could last 30 years or more. As part of this, you’ll need to consider what to do with any cash you withdraw over the short, medium and long-term:

Short-term: when still in employment, it’s advisable to keep three to six months’ worth of income in a current account or savings account that will give you instant access for covering emergency costs. Upon retirement, this should increase to one to three years’ worth of expenditure.

Medium-term: cash that’s not required in the immediate future could be tied up in a fixed term savings account as these tend to pay higher interest rates than you’ll get with an easy access account. In return, you must leave your funds untouched for the term of the account, which could be anywhere between six months and five years. As a general rule, the longer the term of the account, the higher the rate of interest. You could choose to lock some cash away in a shorter-term account, and another chunk in a longer-term one.

Long-term: investing can be a good option for any cash you won’t need to use for longer than five years. Investing in the stock market tends to give better returns than cash savings over the long-term but remember that your investments can fall in value as well as rise, so you should ensure you understand the risks involved first.

Key questions to consider

Before deciding whether pension drawdown is right for you, it’s worth asking yourself the following questions to ensure you fully understand your options:

How much of my pension do I want to move into drawdown?
Will I be charged an exit fee if I transfer my pension?
Am I comfortable managing my retirement income or would a guaranteed income be more suitable?
How regularly should I make withdrawals?
Am I comfortable with the investment risk and do I have other income to fall back on?

How we can help

Should you need help answering these questions, our expert pension advisers are on hand to discuss all your pension and retirement options. We take a holistic approach tailored to you, the individual, and will always make alternative suggestions if appropriate.

Our advisers will talk to you in jargon free language to help you understand your choices and our advice and recommendations will be focused on helping you to get the best possible result.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Past performance is not a reliable indicator of future returns and all investments involve risks including the risk of possible loss of capital. Some information quoted was obtained from external sources we consider to be reliable.

Tees is a trading name of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered number 211314.

Tees Financial Limited is registered in England and Wales. Registered number 4342506.

If you want a flexible and straightforward way to save for your retirement that puts you in the driving seat, a self-invested personal pension, or SIPP, might be appropriate. Here, we explain how a SIPP works so that you can consider whether it could be the right pension plan for you.

What is a SIPP?

What are the tax benefits?

Are there any limits on SIPP contributions?

Why should I choose a SIPP over other pension arrangements?

What types of investment can I have?

How can I take money out of my SIPP?

How we can help

What should I do about my pension if I see the value dropping?

Will my pension pot ever recover?

Is now a good time to top up my pension?

How do I make sure my pension is protected?

Can I get advice about my pension?

We’re here to help

Drawdown allowances and tax rules

What are the benefits of drawdown?

What are the downsides?

How to manage drawdown funds during retirement

Key questions to consider

How we can help