What is a Pension?
A Self-Invested Personal Pension (SIPP) is a way for people to prepare and save for their retirement privately, outside of workplace or state pensions. The SIPP is government approved and gives investors tax relief on contributions made to their personal pension.
How much tax relief you get depends on whether you are a basic, higher or additional rate taxpayer. Basic, higher and additional rate taxpayers qualify for 20%, 40% and 45% tax relief respectively. So, if a basic rate tax payer earns £125 before tax, they would pay 20% income tax on that earning and receive £100 in their bank account. If they then deposit that £100 in our SIPP, the government gives you the £25 tax you paid back in the form of a contribution to your SIPP.
It's important to remember that you cannot access the money in your SIPP until you reach a certain age, which is currently 55. In some circumstances you can access your pension early, for example, if you are in poor health or your profession has a lower retirement age.