Boosting your pension savings

Last updated at 12:21, Wednesday, 13 March 2013

Now more than ever it’s important to have a sufficient nest-egg in place for your retirement. But what’s the best way of actually guaranteeing that for yourself? With many traditional pensions performing badly despite the high charges, many people are turning to self invested personal pensions.

What are SIPPs?
Self-Invested Personal Pensions are often referred to as “Do it yourself pension schemes” and that’s exactly what they are. Those who opt for a SIPP over a traditional pension are able to make all the decisions on exactly where there funds are invested. When you start to have SIPPs explained and begin to understand how they work, you’ll understand there is also a much wider range of potential investments available through a SIPP which potentially offers the chance to build a much healthier pot come retirement.
SIPPs were originally created in the 1990s to care for the extremely wealthy savers around at that time. However, on the market nowadays is a simple and inexpensive low cost SIPP which has opened the market to a broader range of potential investors.

What does it cost?
The most significant change in SIPPs has been the cost. Where once charges were high to open the pension and on each deal you make, now they have dropped dramatically. For example, opening a Sippdeal SIPP you can benefit from a wide range of investments and online dealing from below £10 each deal. If you wish to deal often, this is an ideal option for you.
What investments are available?
As said previously, the range of potential investments available through a SIPP is much wider than those offered through a traditional pension. Specifically with a SIPP you can invest in the following:
Stocks and shares
Government bonds
Corporate bonds
Warrants
Investment trusts
Exchange traded funds & commodities

What are the tax benefits?
When you make a personal contribution into your SIPP, you’ll do so “net” of basic tax rate. In basic terms this means that you’ll benefit from a 20% tax relief on that contribution. For higher rate tax payers there’s also the potential to claim even higher rates of tax through their self-assessment return.

How do I draw an income?
You can start to enjoy the benefit of the money in your SIPP when you reach the age of 55. Initially you can draw a tax free lump sum of 25%, with the remainder available to be withdrawn as an income. You could also choose to take this income through the purchase of an annuity.

If you make the right investment decisions now, this could be a significant fund for your retirement.