What Is A SIPP?
Ah the modern pension. A much maligned yet heavily utilised financial scheme. With more than a few shakeups in the last few years, however, many claim that the UK’s financial future is now in a state of disrepair. That is of course unless we act quickly. By utilising the alternatives at our disposal, we stand a chance of rectifying our future and supplementing our retirement income with meaningful contributions. By now, you’re probably wondering (with good reason) what are these alternatives we’re wittering on about? Well, there are many. But for the purposes of this article we’re going to focus solely on the SIPP. So, just what is a SIPP?
Before we delve into the question that’s on everybody’s lips ‘what is a SIPP?, lets first delve into why it’s necessary to consider such alternatives in the first place.
Where do you picture yourself in 20 years? Sunning yourself in the tropics, cocktail in hand? Lounging around your dream house, surrounded by all the comforts and luxuries that you have come to expect in your retirement? If you’re like most people, you’re bound to have a more than optimistic outlook for your future. Who can blame you? You’ve worked hard all of your life and now you want to the reap rewards.
As we’ve already mentioned, the UK’s state pension isn’t all it was cracked up to be. A recent investigation conducted by This is Money outlined that pension figures have been massively inflated by the government, providing many people with a false impression of how much they will actually receive upon entering their retirement. This paired with an ever-increasing cost of living in the UK means that many are likely to live out their twilight years with far less money than they had first anticipated.
Even before the real value of our pensions had been made apparent, people were already conscious that they weren’t saving enough for their retirement. The PLSA (Pensions and Lifetime Savings Association) recently reported that up to 80% of people aren’t confident that they are putting enough money to see them through their later years (let alone that Mediterranean cruise). This equates to roughly 30.4 million people of working age across the UK. The reality of retirement for many can be bleak. 19 million pensioners in the UK currently live in poverty, whilst a further 14 million are on the brink. Perhaps unsurprisingly, this number is set to increase in the coming years. This is of course, unless you take action and get to grips with some serious damage control.
Time to retire the traditional pension?
As it stands, the traditional state pension is failing, and more people are looking for alternative ways to invest their capital. Many are turning to peer to peer property investments as a way to invest their pensions and earn profitable, consistent returns. The reason why is simple: property for a long time now, has proven to be an effective way of supplementing pension funds. It’s a comparatively stable asset when compared to the likes of stocks and shares and with the ever-increasing demand for property in the UK, rental and purchase prices are only ever on the rise.
For years, UK investors have invested their pensions into property through a combination of collective funds, unit trusts and investment trusts. Investments like these allow a portion of your pension to be invested across hundreds of properties on behalf of an insurance company or platform provider. These days, there’s a growing trend to operate in a similar manner but on a much smaller scale. This is where peer to peer lending and The SIPP come in to play.
Take control of your pension with a SIPP
Finally, we’re here! What we’ve all been waiting for. What is a SIPP? SIPP simply stands for Self-Invested Personal Pension. On a fundamental level they give you more control over your pension fund and provide more scope to use it in a financially savvy way. Anyone can open a SIPP and anyone can benefit from elevated levels of control that they provide.
While traditional pensions have been designed to help save for our future, they just don’t offer the same flexibility as a SIPP. With SIPPS, individuals can invest in a range of assets pre-approved by HM Revenue and Customs. They provide investors with the authority to take charge of their money, and then invest it in places where they see fit.
Peer to peer lending is one such avenue that allows those with pensions to diversify their capital. With peer to peer lending, individuals can benefit from much higher interest rates than they would if their money was idly sat in a bank account. Whilst accompanied with a degree of risk; i.e the potential loss of your capital, peer-to-peer lending has quickly cemented itself as a viable alternative to the typical pension scheme.
In fact, according to the SIPP club, the government are actively backing investing pensions through peer to peer lending, advocating it as a means to diminish the banks’ monopoly of power.
So now that we’ve established an answer to the question ‘what is a SIPP’ and also determined its effectiveness in combating the decline of the state pension, you can now focus on whether it’s something that you would consider implementing into your retirement plan. Here at The House Crowd we plan on integrating SIPPs into our product range in the near future, helping people who have been unable to gain exposure to UK residential property via their pension to do so. Keep an eye on our website to keep up to date with the latest news and information regarding our upcoming SIPP product.
In the meantime, why not take a look at our Seedrs fundraising campaign to see how we plan on taking our unique investment proposal to the next level.