Helping you get started with your pension
Saving for retirement
Saving for your retirement can seem complicated with so many different types of pensions and other saving accounts to choose from. We all know that it is best to start early but the choice can be bewildering and too often we leave it for another day. But the earlier you start saving the longer your pension will have to grow - read more on when to start saving for your pension.
What is a SIPP?
A self-invested personal pension or SIPP is a type of pension that allows you to manage and control your savings. You choose how much to save – either monthly or lump sums and both you and your employer can make contributions. You can change how much you save easily so you can be flexible if your other financial commitments change. Just as with other types of pensions you’ll get great tax benefits for saving into a SIPP – for every £4 you save the Government will add an extra £1 - see contributing to your pension for more details of the annual limits.
A SIPP allows you to choose where to invest your pension savings giving you a wide choice of shares and funds. You can track your investments online and make changes to your portfolio easily. Read more on SIPPs.
Pensions are designed to save for the long term – once you have paid money into your SIPP you cannot normally take it out until you are 55 (57 from 2028). A SIPP is not suitable for everyone - if you don’t want to manage you own investments or invest directly in the stock market you should consider seeking professional financial advice. In fact, if you are approached about taking money out of your pension before age 55, you should be wary as you could be being targeted as part of a pension scam.
What if I’m self-employed?
Being your own boss means you won't have an employer to pay into your pension. But you can still make personal contributions into a SIPP and enjoy tax relief.
And if you own your business, you could pay into your SIPP via employer contributions. Employer contributions are deducted from your total profits, so aren't liable for corporation tax. Also, as you're taking the profit as income now, you’ll lower your personal liability for income tax.
What about a Lifetime ISA?
If you are aged between 18 and 39 then you may wish to consider using a Lifetime ISA for saving for your retirement. You can invest up to £4,000 per annum and the government will top it up with a 25% bonus, up to £1,000. As with other ISAs, your investments are sheltered from tax but remember you can only withdraw the cash (without incurring the penalty charge) if you buy your first home or from age 60. However if you are considering using a Lifetime ISA instead of enrolling in a pension scheme you should consider if you will miss out on the benefit of employer contributions and your future entitlement to means-tested benefits may be affected. Find out more about Lifetime ISAs.