SIPP stands for Self-Invested Personal Pension, and is a scheme which allows you to invest your pension savings where you choose, such as in commodities. If you are considering pension options, this short guide will talk through some of the benefits of using a SIPP with share dealing.
Share Dealing vs. Share Trading
First it is important to know the difference between share dealing and share trading. Share trading involves buying stocks and shares to sell on for a quick profit, ultimately aiming to make multiple profits in the short term.
Share dealing, on the other hand, involves investing in stocks which will profit over a far longer time period, ultimately meaning they are better suited to a SIPP (as pensions are long term schemes). The profit is also intended to be much larger, since the investment has more time to grow (although profit is not guaranteed).
Having the freedom to choose where you invest your money is arguably one of the best benefits of a SIPP. Compared to standard Personal Pensions, where you have little or no choice in your investments, SIPPs allow for a greater potential return, since you can invest in the market that seems most suitable to you.
They also offer decent tax relief as part of the scheme, especially for those paying higher tax rates, meaning that you get a high return on investment when you eventually withdraw your pension. Bestinvest illustrate howan investment of £12,500, for instance, would end up receiving £5000 tax relief to someone paying 40% Income Tax.
A SIPP which utilises share dealing is ideal for younger people who are not nearing retirement, as it means their investment has ample time to continue growing and potentially offer a high return. The tax relief that a SIPP is subject to allows more money to be saved and made in the long run, meaning they can be potentially more lucrative when invested in early.
Investing money does, by definition, always carry some element of risk, so research is important when deciding if SIPPs and share dealing is right for you. Look at the different options available and calculate which would be most beneficial when you reach retirement.
SIPPs are certainly one of the most profitable schemes on the market, and when combined with share dealing and tax relief, they have the potential to offer great returns. Research them to see if you would benefit, and if necessary seek financial advice.