In this guide, we delve deeper into the process of how to contribute to a SIPP, step by step, and the different ways to do it.
- How do I put money in my SIPP?
- How do I pay monthly to a SIPP?
- How do I set up employer contributions to my SIPP?
- Can I pay a lump sum into a SIPP?
- How do I pay extra pension contributions?
- Can I backdate SIPP contributions?
- Can you pay into a SIPP if not working?
- Do you have to pay into a SIPP every month?
How do I put money in my SIPP?
Before you start contributing to a SIPP it’s good to understand the process. Here’s a detailed breakdown:
Choose your SIPP provider
The first step is to find a reputable SIPP provider that offers low fees, a range of investment options, and excellent customer support.
SIPPs are a big part of your retirement, and you might be using your provider for the next 30 years or more depending on what stage you’re at in life.
It’s a big decision that needs lots of research, and a good understanding of what makes a good SIPP provider for you.
Once you’ve done that:
- Open a SIPP account:
Once you’ve chosen a provider, you’ll need to open a SIPP account. This usually involves filling out an application form and providing the necessary documentation to confirm your identity and address.
You may also be asked to provide details about your current pension arrangements if you plan to transfer funds from an existing pension.
- Transfer funds
After your account is set up, you can start contributing to your SIPP. There are several ways to do this:
Transfer funds from an existing pension: If you have an existing pension, you can transfer the funds to your new SIPP. It’s essential to understand any potential fees or charges associated with the transfer and consider any loss of benefits or guarantees.
If you have a Defined Benefit or Final Salary pension, be extra careful and seek financial advice. If you have a Defined Contribution pension, check how much your existing provider would charge you for transferring away.
Giving them a call is usually the easiest and most direct way to get answers.
Make new contributions: You can make new contributions to your SIPP by bank transfer, Direct Debit, or cheque. The process for each method may vary slightly, so consult your provider for specific instructions.
The easiest method is usually online, but you’ll usually be able to contribute over the phone or by post if you need to.
How do I pay monthly to a SIPP?
Setting up monthly contributions to your SIPP can help you consistently save for retirement. Here’s a more detailed explanation of the process:
- Set up a monthly Direct Debit for your SIPP contributions – you’ll be able to do this online through your account on the platform. Or, contact your SIPP provider and they’ll provide you with the necessary forms and guidance to begin the process.
- Choose a date – some providers will only collect your contribution on a set date, while others offer more flexibility. You might want to set contributions up for just after your payday so you can budget effectively for the rest of the month.
- Decide on the amount you want to contribute each month – think carefully about your budget and financial goals when determining the appropriate amount.
- Monitor your account: Keep an eye on your account to ensure the Direct Debits are happening as expected. If you notice any discrepancies, contact your provider.
- Make sure your contributions are being invested in line with your instructions and strategy – you don’t want them building up as cash unknowingly if that’s not your plan.
How do I set up employer contributions to my SIPP?
Having your employer contribute to your SIPP can boost your retirement savings significantly. Here’s how to set it up:
- Before you begin, check with your employer to see if they’re willing to contribute to your SIPP. Some employers may have restrictions on the types of pensions they can contribute to or prefer to use their workplace pension scheme.
- If your employer agrees to contribute, give them your SIPP provider’s details. This includes the provider’s name, your SIPP account number, and any necessary reference codes. Your employer may also need your National Insurance number.
- Discuss with your employer how much they’ll contribute and how often. This may be a percentage of your salary or a fixed amount. Be sure to confirm the contribution schedule (e.g., monthly, quarterly).
- Regularly check your SIPP account to ensure your employer’s contributions are being added as agreed and invested promptly in line with your investment strategy.
Can I pay a lump sum into a SIPP?
Yes, you can pay a lump sum into your SIPP.
Paying a lump sum into your SIPP can be an effective way to improve your retirement savings.
You just need to be careful not to contribute over your annual allowance. Hint: it’s £60,000 or the amount you earn in the tax year, whichever is lower.
How do I pay extra pension contributions?
There may be times when you want to top up your SIPP with additional contributions, such as when you receive a bonus or inheritance. Here’s how to make extra contributions:
- First, determine how much you’d like to contribute. Consider your current financial situation, tax implications, and any limits on annual contributions. You won’t be able to withdraw the money you contribute until you reach retirement age.
- Follow your provider’s instructions to make the extra contribution. This may involve making a bank transfer, setting up a one-time Direct Debit, or writing a cheque. Online through your provider’s platform is typically the easiest option.
- Keep an eye on your SIPP account to ensure the additional contribution is received and allocated correctly.
Can I backdate SIPP contributions?
Although you can’t backdate SIPP contributions, there’s a provision called “carry forward” that allows you to make use of any unused annual allowance from the previous three tax years.
To be eligible, you must have been a member of a pension scheme during those years.
Here’s how it works:
- Calculate any unused annual allowance from the previous three tax years. This involves subtracting your actual contributions from the annual allowance for each tax year.
- Add your unused allowance from the previous three tax years to the current year’s allowance.
- Use the total available allowance to make a contribution to your SIPP.
If you’re unsure about your calculations, speaking to a financial advisor will help.
Can you pay into a SIPP if not working?
Yes, you can contribute to a SIPP even if you’re not working.
Non-earners can receive tax relief on contributions up to £3,600 per year. This includes stay-at-home parents, retirees, and those on a career break.
You’ll only need to add £2,880 of your own money to reach the gross figure of £3,600 – HMRC will add £720 as tax-relief for you!
Do you have to pay into a SIPP every month?
There’s no requirement to contribute to your SIPP every month. You can choose a payment schedule that suits your needs, such as one-off contributions, quarterly payments, or annual lump sums.
The key is to find a contribution plan that aligns with your financial goals and budget.
Do I have to declare SIPP contributions on my tax return?
In most cases, you won’t need to declare SIPP contributions on your tax return.
However, you must report them if you’ve exceeded the annual allowance or if you’re claiming higher-rate tax relief.
In these cases, you’ll need to complete the relevant sections of your tax return to report the contributions.
How much can I put in a SIPP tax-free?
The annual allowance for tax-free SIPP contributions is £60,000 or 100% of your annual earnings, whichever is lower.
This includes both your contributions and any made by your employer. If you exceed this allowance, you may be subject to a tax charge.
It’s important to note that if you’re a high earner with an income over £200,000, your annual allowance may be reduced.
Additionally, if you’ve started drawing money from your pension via flexi-access drawdown, your annual allowance for further contributions may be reduced to £10,000 in line with the Money Purchase Annual Allowance (MPAA)
Is a SIPP better than an ISA?
Both SIPPs and ISAs offer distinct advantages, and the best choice depends on your individual needs and goals.
Here’s a quick comparison:
SIPPs offer tax relief on contributions, a wide range of investment options, and the ability to access your pension from age 55 (rising to 57 in 2028). However, only 25% of your SIPP can be withdrawn tax-free, with the remaining 75% being taxed as income when you make withdrawals.
ISAs provide tax-free growth and withdrawals and offer more flexibility in terms of accessing your funds.
However, they don’t offer tax relief on contributions.
It’s worth considering your long-term financial goals, risk appetite, and need for flexibility when deciding which option is best for you.
Some people may even choose to use both SIPPs and ISAs to create a diversified retirement savings strategy.