Step by step guide to setting up a SIPP

Setting up a Self-Invested Personal Pension (SIPP) could be a smart and flexible way to plan for your retirement. A SIPP allows you to take greater control over your pension investments than you might get with an insurance company or platform pension, tailoring your retirement savings to suit your financial goals. Here is a step-by-step guide to help you understand the process and make informed decisions.

Step 1: Understand what a SIPP is

A SIPP is a type of personal pension which can offer more control over how your retirement savings are invested. Depending on the provider and product, you can choose from a wide range of investments, including:

• Stocks and shares
• Bonds
• UK commercial property
• Gold bullion
• Investment funds and more 

Key benefits of a SIPP 

• Tax-efficient contributions: Pension contributions are eligible for tax relief within limits set out by HM Revenue & Customs (HMRC)
• Investment flexibility: Choose where your pension assets are invested
• Tax-free growth: Capital gains and income within the pension are free from Capital Gains Tax and Income Tax
• Tax-free lump sum: Typically, a proportion of your pension pot can be taken tax-free upon drawing benefits in your lifetime. This proportion will depend on your individual circumstances.
• Death benefits. Your nominated beneficiaries can benefit from payment of death benefits from your pension pot when you die. The taxation of these benefits (if applicable) will depend on individual circumstances.

Step 2: Decide if a SIPP is right for you

What are the advantages and disadvantages of a SIPP?

Advantages 

• Pension consolidation: Combine multiple pensions into one SIPP, making it easier to manage and potentially reducing fees.
• Broader investment options: Access a wider range of investments than standard insured / platform personal pensions allow.
• Tax relief on contributions: Receive tax relief on pension contributions (subject to limits and eligibility).
• Tax-free investment growth: Investments grow free of Income Tax (generally) and Capital Gains Tax.

Disadvantages

• Market risk: Your selected investments may go up or down depending on market performance (which may also apply to other types of pensions)
• Higher fees: SIPPs may incur higher charges compared to other personal pensions.
• Investment management: You need to be confident in selecting and managing your own pension investments or seek professional advice.

Please note: We recommend you consult a regulated financial adviser to assess whether a SIPP is suitable for your individual circumstances. Dentons’ staff cannot provide you with regulated financial and/or investment advice.

Step 3. Check your eligibility

To open a SIPP with Dentons, you must have:

• A minimum pension fund of £50,000 or the ability to contribute at this level (subject to HMRC limits).

And you meet one of the following criteria:

• You are a UK resident for tax purposes
• You earn income chargeable to UK Income Tax
• You are a Crown Servant (or their spouse/civil partner) working overseas
• You are a non-UK resident with a qualifying UK Registered Pension Scheme to transfer in from

Step 4: Choose a SIPP provider

When choosing a provider for your SIPP, some things to consider are:

• Range of investments: Can you access the full spectrum of assets you’re interested in?
• Support and service: Is there a named and dedicated point of contact for assistance?
• Retirement flexibility: Do the drawdown options support your retirement income needs/strategy?
• Provider experience: How long has the company been operating and managing SIPPs?
• Financial stability: Review the provider’s profitability and Capital Adequacy Ratio (CAR) – a measure of financial resilience.

Step 5: Opening your SIPP account

Once you’ve selected a SIPP provider that is suitable for your individual requirements, you’ll need to complete their application form(s) which typically requires:

• Personal details (name, address, date of birth)
• National Insurance number
• Details of any existing pensions if you are transferring pensions into the SIPP
• Contribution details, if these are being made
• Investments required
• Confirmation of identity – client identification and proof of address for anti-money laundering purposes.

With Dentons, the SIPP application forms can be completed online and signed electronically.

Dentons Full Asset SIPP requires a wet ink signature for the Sub-Trust - a legal contract drawn up between you as the client and Dentons as the provider/Scheme Administrator under our SIPP Master Trust.

Step 6: Fund your SIPP

You can fund your SIPP by:

• Making ad-hoc and/or regular pension contributions and/or:
• Transfer existing UK Registered Pension Scheme into your SIPP

Tax relief on pension contributions

The amount of tax relief you receive depends on your income tax rate, for example, for a £100 contribution:

• Basic-rate (20%): Pay £80, and the government adds £20.
• Higher-rate (40%): Claim an additional £20 via your tax return.
• Additional-rate (45%): Claim an extra £25, reducing your net cost to £55.

Please note: The annual allowance is currently £60,000, or 100% of your UK relevant earnings as defined by HMRC (whichever is lower). If you have already accessed your pension, the Money Purchase Annual Allowance currently £10,000 may apply.

We will require evidence of your earnings to support your personal contributions.

Step 7: Invest your funds

Once the SIPP is funded, your funds can be invested. Investment options may include:

• Stocks and shares
• Bonds
• UK commercial property
• Gold bullion
• Investment funds and more [link to investment page]

Some more complex investments, such as commercial property and non-standard assets, will require us to provide prior agreement.

Dentons offers one of the widest ranges of permitted investments in the SIPP market. View our Permitted Assets List for both the Full Asset SIPP and Single Portfolio SIPP.

Step 8: Manage and monitor your SIPP

After setting up your SIPP and making your initial investment from funds within the SIPP, you’ll want to regularly monitor your portfolio and make adjustments, if needed. This can include:

•    Adjusting your asset allocation/making changes to your investments
•    Making additional contributions as your income or savings increase
•    Transferring from other UK Registered Pension Schemes 

Please note: most defined benefit pensions will need specialist advice and approval before they can be transferred. 

Dentons’ clients and their financial advisers can access our secure online portal to review their SIPP information at any time.

Step 9: Plan for retirement

When you are ready to take retirement benefits (from age 55, rising to 57 from April 2028), you may have several options:

• Take a proportion of the fund as a tax-free lump sum. 
• Income drawdown: Keep your funds invested and take income as you need
• Uncrystallised funds pension lump sum (UFPLS)
• Annuity purchase (please note Dentons does not offer its own annuities).

You should consider seeking regulated financial advice to ensure you make the right choices at the right time for your individual circumstances.

Step 10: Regularly review your SIPP

Keep your SIPP aligned with your retirement goals by:

• Reviewing your investments: Ensure that they are performing as expected and are still aligned with your risk tolerance and goals. 
• Adjusting contributions: You can increase or decrease your contributions depending on your financial situation and eligibility
• Taking professional advice: If you’re unsure about any aspect, consider speaking to a regulated financial advisor, particularly when making decisions about withdrawals or managing your investments. 
  Please note: Dentons is unable to provide advice on the performance of investments. Speak with a regulated financial adviser for tailored advice.

Additional tips:

• Understand the tax treatment: Besides tax relief on contributions, SIPP funds generally grow tax-free, but withdrawals are subject to Income Tax at your marginal rate of tax. 
• Consider professional advice: If you feel unsure about managing your SIPP investments, seeking advice from a regulated financial adviser may be beneficial.

Summary

A SIPP allows you to take control of your retirement planning, offering both flexibility and tax efficiency. By following these steps and choosing an experienced SIPP provider like Dentons, you can build a personalised pension plan that aligns with your financial goals.

If you're considering a SIPP, contact Dentons or speak with your financial adviser.