70% of SIPPs are non-advised. Here’s why the DIY approach could hurt your pension

If you are self-employed, you can’t plan for retirement on autopilot.

Unlike those who pay into a workplace pension automatically, self-invested personal pensions (SIPPs) are a hugely important vehicle for retirement planning if you’re self-employed. You could also open a SIPP as an employed person if you wish to vary your pension savings, rather than paying exclusively into a workplace pot.

There are now more than 6 million SIPP investors in the UK, but as research published by FTAdviser reveals, nearly 70% of these operate on a non-advised basis.

Let’s explore why your DIY pension could benefit from professional attention.

Setting goals for growth

One question we hear time and time again – particularly from self-employed people without a pre-set monthly pension contribution plan – is: “How much should I be putting in my SIPP each month?”

The answer entirely depends on:

• How much you earn
• The number of years until you wish to retire
• The lifestyle you want to have in retirement
• Whether you are contributing to other pensions at the same time
• Your wider financial plan.

The UK’s Retirement Living Standards suggests that a comfortable retirement costs at least £60,600 a year for a couple. But if you’re accustomed to much higher earnings, your pot may need to be even bigger than what the Retirement Living Standards suggest.

Setting goals is important. From there, you can work backwards and decide the optimal amount to contribute to your SIPP.

Your financial planner will use cashflow modelling software to map out your potential future, helping you to form an effective retirement plan that you can stick to.

Investment decisions that suit your retirement plan

Log into your SIPP online, much like a workplace pension, and you will be presented with a range of options for investing your pot.

These are likely to vary in risk level and type of fund, with most providers now offering environmental, social, and governance (ESG) options too.

Having lots of choice is a great thing – but it could also lead to:

• Opting for the “standard fund” if you’re unsure which other option would suit you
• An over-cautious approach that leads you to choose the lowest-risk option (when this may not work for you long-term)
• A tendency to chop and change your investment options quarterly or annually, which could hurt your returns.

By speaking with a financial planner, you could select the right suite of investments within your SIPP. No selection guarantees certain returns, but an advised choice is likely to improve your chances of meeting your goals.

Considering your consolidation options

You likely hold more than one pension, especially after a long career. Royal London estimates that the average person has 2.4 pension pots, but some have many more if they have moved roles several times.

If you have old workplace pensions and are currently contributing into a SIPP, your financial planner can examine the big picture of your pension pots and provide recommendations on consolidation (in other words, help you decide whether to pour all your pension wealth into one pot).

For some, consolidation has some great benefits – a potential reduction in fees and greater compound growth, to name but two.

On the other hand, consolidating your pensions could mean you give up valuable benefits.

With the right advice, you can work out how to maximise the value of your pensions over the long term.

Avoiding SIPP scams

Pension scams are on the rise. You might have read our recent article about the increase in UK pension fraud, and some of the red flags you need to be aware of.

When you work with a financial planner, you have access to fully regulated advice. The person advising you will be accountable to the Financial Conduct Authority (FCA) and aware of the SIPP scams that exist. Advice may offer you the peace of mind that your SIPP is being managed safely and appropriately.

Staying tax-efficient

The topic of pensions and tax is a complicated but important one – whether you’re paying into a pension or drawing from it.

When you’re paying into a SIPP

You can make tax-efficient pension contributions up to the value of the Annual Allowance, which stands at £60,000 for most earners. If you are a high earner or have already flexibly accessed a pension, your Annual Allowance could be tapered down to a minimum of £10,000 a year.

This applies across all of your pension pots, so if you’re paying into a SIPP on top of a workplace pension, be careful to remain within your Annual Allowance.

But the Annual Allowance is not the only tax factor you need to consider regarding your SIPP. There’s also the topic of tax relief on your pension contributions, which you can claim at your marginal rate through self-assessment each year, essentially reducing the cost of your pension contributions. Failing to claim these could mean your pension is not as tax-efficient as it could be.

Finally, remember that payments into a pension, within your Annual Allowance, are tax-deductible. So, by paying more into your pension each year, you could reduce the amount of Income Tax and National Insurance (NI) you pay.

As mentioned above, your financial planner can examine your contributions and help to ensure they are as tax-efficient as possible within your circumstances.

When you’re withdrawing your funds

Of course, the purpose of paying into your SIPP is to build a reliable retirement fund.

If you are nearing retirement and have amassed a substantial amount of wealth within your SIPP and any other pensions you hold, it could be time to check in with a professional and form a tax-efficient retirement income plan.

We can help you:

• Avoid paying unnecessary tax on what you take out of your SIPP
• Ensure you’re living sustainably and can afford your goals
• Gain reassurance that you’re doing the right thing for your family.

Securing your retirement plan with the help of a financial planner could bring valuable peace of mind in the years to come.

Work with us

Our award-winning financial planners are well-equipped to help you manage your SIPP, workplace pension, and overall retirement plan.

Email us at hale@kelland.co.uk or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Workplace pensions are regulated by The Pensions Regulator.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

The Financial Conduct Authority does not regulate tax planning.

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