Maximising retirement savings: Three quick tips for building wealth with a SIPP

Opening a Self-Invested Personal Pension (SIPP) can be an excellent way of boosting your retirement savings. There are many benefits to SIPPs, including tax-free growth and government top-ups, but how can you make the most of your SIPP’s potential to make you money? 

Tax relief is a valuable asset to any investment strategy, and there are many ways that you can use this perk to your advantage when it comes to building a nest egg for retirement. 

But how do SIPPs actually work? And how can you gain as much value as possible from your personal pension? Let’s take a look at three quick and easy tips to build wealth with the help of a SIPP: 

What is a SIPP?

In recent years, SIPPs have become an increasingly popular way of saving for retirement. In 2023, more than £205 billion in assets were held in SIPPs with over 1.7 million people using Self-Invested Personal Pensions. 

In a nutshell, a SIPP allows you to save, invest, and build a pot of money ahead of your retirement. While it works similarly to traditional pensions, a Self-Invested Personal Pension offers greater flexibility and control over the type of investments that you can choose to add to your nest egg. 

While SIPPs are a popular choice among those with experience in investing, they’re becoming more commonplace among self-employed individuals who don’t have a typical workplace pension and those keen to invest alongside their workplace pensions. 

So, how can you make SIPPs work to your advantage? Let’s take a look at three quick tips that can help you build wealth with the help of a Self-Invested Personal Pension: 

1. Track and consolidate your existing pensions

The average adult in the UK will hold nine jobs in their lifetime, and this will often mean a lot of different pensions created with lots of different providers. 

This means that if you’ve had multiple employers in the past, you may have multiple pensions that are difficult to locate and utilise to their full potential. 

By combining your pensions into a SIPP that suits your risk tolerance and financial goals, you can rescue your funds from the ether and really get them to work for you. 

With this in mind, the first quick tip to build your wealth with a SIPP is to consolidate your pensions. But how can you find them? 

Discovering your old pensions can be tedious, especially if you’ve been working for many years. If you don’t know your old providers, then there are resources like the government’s Pension Tracking Service that can help you locate your old pensions. 

Once you find your providers, it’s much easier to trace a pension to add to your SIPP. Typically, your provider will post annual statements to you, and this is usually the case even when you no longer pay into a personal pension. These documents will have your policy number, which you can use to track and consolidate your pensions. 

If you can’t find a statement, you’re likely to be able to access your pension by answering some personal and security questions from your provider. 

2. Stagger your tax-free cash

One of the best features of pensions is that you’re able to withdraw 25% of your total funds tax-free when you reach retirement age, up to a maximum of £268,275. This means that when you turn 55 (soon to be 57 following retirement age changes from 2028) you’ll be able to access your savings. 

However, to preserve your investment growth, you can use a SIPP to adopt a more staggered approach and withdraw your tax-free cash in stages. 

This means that you won’t have to commit to either a drawdown or an annuity, and you can retain a higher proportion of your savings to ensure that the amount you have available to withdraw tax-free will increase over time. 

In addition to this, any pensions you haven’t drawn remain exempt from inheritance tax, unlike the money in your bank account. 

3. Flexibility to avoid value traps

The added control that you’re afforded when using Self-Invested Personal Pensions can be a great way of managing the types of investments you’re making ahead of your retirement. 

Because SIPPs are long-term focused, you can arrange your investments to focus solely on assets like stocks and shares that have historically demonstrated significant long-term outperformance, as opposed to falling into the temptation to buy into a stock that’s on a roll through a different investment strategy. 

Value traps can be a pervasive danger to investors who are seeking short-term gains, so using a SIPP paves the way for a more sustainable mindset that helps to protect against more risky assets. 

Whether you intend to curate your SIPP and its underlying investments yourself or collaborate with a financial adviser, this approach can be invaluable in protecting against the temptation of buying short-term performers. 

Taking control of your retirement pot

The reason SIPPs are becoming increasingly popular is that they offer a flexible approach when saving for retirement that puts you in control of your pot. 

Unlike workplace pensions which are typically more passive in structure, you can use SIPPs to adopt a vast range of investment strategies that suit your specific saving goals. 

If you have the time and knowledge to positively influence your retirement planning, these three quick tips can be a great way of building your wealth and setting up a nest egg for the future on your terms.