Gen Z Money Matters Series: SIPP

I am excited to be continuing this series and we are discussing one of the fundamental personal finance tools that everyone should consider using. It is without doubt that pensions are becoming a hot topic for debate, such as whether the state pension pay is fair and if the age requirement is too high. People are expected to wait till their late sixties to be able to enjoy their retirement, after years of hard work and contributing to society. The state pension age continues to rise making it near impossible to enjoy an early retirement, making it even more essential that everyday people use a SIPP. A SIPP, also known as a Self-invested Personal Pension is a tax efficient investment wrapper that is designed for saving and investing for your retirement. You will not be able to access your money until you reach the age of 55, which is rising to 57 in 2028. You are able to take a 25% tax-free lump sum. If you do decide to take money out of a SIPP early, you will be subject to a penalty charge, under current HMRC rules, any unauthorised withdrawal will be taxed at a rate of 55%. Any withdrawals beyond the tax-free amount will be taxed at your marginal rate of income tax. The most common SIPP investments are stocks and shares, funds, investments trusts, commercial property, etc. The main difference between a SIPP and a company pension is that a SIPP is contributed to and organised entirely by an individual whereas a company pension has the employer contribute a certain percentage to your pot. A SIPP is beneficial because it gives you far more flexibility of what you can invest in, compared to a company pension which would most likely have fewer options to choose from. This gives you total freedom over your savings and investments, which brings comfort to many individuals knowing they are in the driving seat of their future. According to www.sippadvice.co.uk the 2024/2025 allowance for SIPP's is ￡60,000, remember this figure may be subject to change each tax year. It is important to remember this figure applies to all of the contributions made across all of your pension schemes, not just your SIPP. SIPP's are known for their great tax-relief benefits. Different tax brackets have different amounts of tax relief. For example, Basic rate taxpayers (20%): For every ￡80 you contribute, the Government adds ￡20 in tax relief. Higher rate taxpayers (40%): For every ￡60 you contribute, the Government adds ￡40 in tax relief. Finally for Additional rate taxpayers (45%): For every ￡55 you contribute, the Government adds ￡45 in tax relief. You can still contribute to a SIPP even if you are not earning any income. However, the allowance is far lower for non-earners, if you are a non-earner you can contribute ￡2,880 with a maximum tax relief amount of up to ￡720. Many people are unaware of still being able to invest even though they are a non-earner and if this criteria applies anyone eligible should take full advantage of this. A good example is a recent university graduate, who may be looking for work, they can still invest small amounts into a SIPP in the meantime. Overall SIPP's are a fantastic tool for young people to use to build up a strong pension pot, whilst having total free range of investments and savings, bringing comfort and a sense of control over their retirement. Please remember to do your own research.