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What are the similarities between Standard Pensions and SIPPs?

Controversy surrounding pensions has all but died down after Brexit, despite former Prime Minister David Cameron warning that the government would not be able to protect spending on retirement funds prior to the EU referendum vote. There is no doubt that this will remain a bone of contention as the fall-out continues, however, as we wait for the boundaries of Brexit to be defined and the true financial impact to be determined. Such uncertainty makes it hard for individuals to plan their retirement in detail, particularly when it comes to determining a viable method of investing capital.

The Similarities between Standard Pensions and SIPPs

With this in mind, it is worth taking proactive steps towards considering your options and making an informed decision. You may be torn between a standard pension offering and a SIPP, for example, and confused as to which is the best option for you. Here are some of the similarities between these two options in the current marketplace: -

  1. There are contribution Limits for both pension types All pensions operate specific contribution limits, for example, with standard options and SIPP providers such as Bestinvest no exception to this rule. Under current rules, for example, those with a SIPP can contribute as much as £40,000 per annum, while those who earn in excess of £150,000 each year will see this maximum threshold increased by £10,000. These numbers are similar to those associated with standard pension plans, so you will always encounter investment thresholds no matter which course you choose to take. 
  2. You can never have complete Access to your Funds Remember, the goal of your pension is to provide funding for your later years. This is why all pension types (including standard and SIPP) have restrictions in terms of how and when you access your capital, with the most popular withdrawal method being an annuity through which you use your pension as weekly income once it has matured. Both of these are accessible through standard and SIPP funds, although the latter does offer greater flexibility and the option of a large, lump sum withdrawal if required. 
  3. There are restrictions on how you invest standard and SIPP Pension Plans On a final note, it is important to recognise that both standard pension plans and SIPPs have restrictions in terms of how capital can be invested. It is unlikely that either will ever allow you to invest directly into a residential property, for example, due primarily to the tax advantages that usually come with this type of arrangement. While there are some exceptions to this rule for SIPP owners who meet certain criteria, it is generally accepted that stakeholders cannot commit their pension funds to real estate.

Have you struggled to understand the difference between Standard Pensions and SIPPs? Has this helped?

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