Approximately 5.3m people had a SIPP (Self-Invested Personal Pension) in 2024. That’s a decent figure, but only a small percentage of the 55m or so adults in the UK. Now, this doesn’t surprise me as most of us can access state and workplace pensions.
However, this also means that nearly 50m people could be missing out on the potential benefits of running an additional pension, or consolidated pension, through a SIPP.
Perhaps the biggest incentive to open a SIPP is the tax relief. For every £80 paid in, the government adds another £20, effectively giving basic-rate taxpayers an immediate 25% boost to their contributions.
Higher and additional-rate taxpayers can claim back even more through their tax return, making SIPPs one of the most efficient ways to grow retirement savings. Over the course of decades, this upfront uplift compounds alongside investment returns, significantly enhancing the eventual pension pot.
Of course, generous tax treatment doesn’t automatically make SIPPs the right choice for everyone. They offer access to a broad universe of investments, but with that comes the responsibility of making sound decisions and tolerating market volatility.
For some, the flexibility to pick shares, funds, or trusts can be empowering. However, for others, it can be overwhelming. Of course, this flexibility does mean SIPP holders can make it as easy or complex as they want it to be.
Nonetheless, it’s important to remember that poor investment decisions can result in investors losing money.
Investing wisely
Success in investments typically comes from taking a measured and typically quite patient approach, rather than chasing quick wins. One simple investment I continue to make in my SIPP is Scottish Mortgage Investment Trust (LSE:SMT).
This investment trust holds shares in some of the world’s most pioneering companies including SpaceX, TSMC, Meta, and Nvidia. And while the portfolio is typically geared towards technology companies, there is some luxury exposure through the likes of Ferrari.
These are companies that have experienced impressive growth in recent years, but they’re also typically more volatile. This could suit a SIPP as investors typically aren’t looking to cash out in the near future.
Long-term trends support this. The stock is up 38% over 12 months, 19% over five years, and 2,812% since 1993. In other words, £10,000 invested 32 years ago would now be worth £290,000.
There are always risks when it comes to investing. One here is gearing — borrowing to invested. Gearing can be a great thing when the value of the investments is going up, but it can magnify losses when these investments fall.
However, I’d once again point to the trust’s long-term performance and its track record for picking the next big winner. It’s a part of my SIPP and my ISA. I certainly believe it’s worth considering.
