The phrase “pension crisis” has become a hot term in the media, but there is no question that Britain is in the grips of one. Many are waking up to the severity of the situation and taking control of their retirement by opting for self-managed pension options in the form of SIPPs. In fact, the number of people who have self-managed pensions continue to rise year after year and by March 2013 the number was over 140,000. Since the inception of SIPPs in 1989, over a million people have chosen it as a route of investment. SIPPs are simple, tax efficient and considered a viable form of DIY pension that may allow some individuals to retire early.
How to start a SIPP
How easy it is to start a SIPP tends to vary on your current situation, but for most it will be a case of finding one that is simple in operation and offers a wide range of investment options. Leading SIPPs are web-based and thus have low operating costs, while still offering freedom when it comes to investments. Basic SIPPs place almost complete responsibility in the hands of the account holder, allowing you to build a custom portfolio that is solely of your choosing. Obviously, those investing large sums of money can opt for accounts that have third-party input and increased security.
Choose the right provider
When looking at providers, you must ask yourself how much you are looking to invest along with how much help you require. Obviously those new to SIPPs may wish to choose a provider that avoids esoteric investments and concentrates more on the share acquisition elements. Popular providers of SIPPs include Alliance Trust, Sippdeal, Charles Stanely, Hargreaves Lansdown and TD Direct.
Choose the right investment
Investments vary with regards to a SIPP and all depend on your age, capital and all-round attitude towards rick. If you have adopted a SIPP as a form of DIY pension early on in your work life, then long term shares and options may be preferable over basic cash and bonds. Those who are facing SIPPs for the first time may wish to choose a share based fund in order to reduce the overall risk involved. Cash can also be considered safe, however the compensation limit of £85,000 should always be taken into consideration.
What do you have to do?
Once you are set-up with your investments via a SIPP provider, all you will need to do is monitor and alter your investments when needed. However, if you are within a high-tax bracket it should be noted that you would need to declare any SIPP contributions in order to be applicable for tax relief. Always remember, a pension is a life investment and should be treated as such, not just invested and disregarded.
SIPPs in one form or another have been around since the late 1980s, but have only recently risen to a level of national recognition. In an era in which pension security is frequently questioned, the realm of DIY pensions and SIPPs is something to consider should you be looking to retire early.