Self Invested Pension Plan

I have a small pension scheme that was started some time ago, the payments were stopped after 10 years or so and I can’t recall why, or if it was even my decision to cancel them (I can’t recall ever stopping the direct debit). The projected returns from that scheme are not great, and the charges were high and not transparent. So I decided that the best solution was to run my own Self Invested Pension Plan (SIPP) account. So I will be in charge of my own money.

I already had a share trading account which cost £90 per year, to add a SIPP was about another £100 per year, and the trading credits from the £90 fee can also be used for trades in the SIPP. So that means the charges amount to a fraction of the charges I would be paying in a pension plan. It also means that I’m in control of the investment decisions rather than some faceless partially accountable team.

I’ve found that saving into a pension is very tax efficient because tax isn’t paid on money that goes into your pension. If money is paid in directly from my employment, it gets paid in before it is subjected to Income tax and National Insurance. Money paid in out-of-pocket by me gets the income tax credited back into the pension account but not the National Insurance. So its best wherever possible to have pension contributions paid from your employer directly from your gross pay, rather than making the payments yourself.

Pensions are a tax efficient way to save. The upside of the SIPP is the relatively low cost. The potential downside is that the investment decisions sit with me, so if I screw that up, I compromise the amount the pension will eventually pay when I retire. I’ll post some more about how I address that potential downside another day.

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