As a UK expat working abroad, you need to know that you have something substantial to look forward to in your old age. And even if you may be able to rely on the UK state pension, for many, this is not enough. This is true if you’d like to be comfortable, have no worries, and be able to enjoy your hard-earned money once you retire or reach your pension age. Many individuals are understandably uncertain, however, when it comes to how they will choose to control their pension funds, or indeed what kind of scheme to choose. If you are one of those and you’ve heard about SIPPs but aren’t quite sure how it works, here’s everything you need to know about SIPPs as a UK expat – and how it can really benefit you.
What it is
SIPP, or self-invested personal pension, is a kind of pension scheme or package where you have better control over your investment plans or decisions. We all know that investments can be risky, but with SIPPs, you can have the proper control over your decisions and can be more likely to benefit from the right ones. In essence, pensions were developed so that people could have something when they retire. But many standard pensions do not give you the chance to be flexible, especially in regard to investments. Aside from this, it can also be challenging to know exactly where your money is going and how you should be using or investing it. With a SIPP, you will have an easier time managing your pension, as you can quickly see how your investments are performing and make changes to them as you prefer. With a SIPP, you are more capable of enjoying your retirement as you see fit.
The tax benefits
If you have a self-invested personal pension, you can basically add whatever money you have to it as you please. Aside from this, the government will give you an additional 20% in tax relief. If you pay higher tax rates, you can often claim back more of it once you do your tax returns. And once it is in your self-invested personal pension or SIPP, your funds can grow freely – without you having to worry about UK income taxes or capital gains. Of course, your tax benefits will depend on your circumstances as an individual, and rules on taxes can change, but fundamentally speaking, a SIPP can give you some extra advantages when it comes to taxes.
The differences between standard personal pensions and self-invested personal pensions
Standard personal pensions can provide you with plenty of funds, but the charges and fees can be quite hefty, especially on plans which are older. And whilst a stakeholder pension may have lower fees, your choices or options for funds are more limited. This isn’t true for self-invested personal pensions, especially pensions for expats– with SIPP, you can benefit from a broader range of investment choices, and these investments can perform very well indeed, making a big difference to your pension pot when the proper time comes. For instance, with a SIPP, you have investment options such as unit trusts, investment trusts, ETFs or exchange-traded funds, stocks and shares, overseas shares, and more.