
Hannah Duncan
Setting up a private pension with a SIPP
Updated: Apr 7, 2020
A little planning now can make a huge difference to your retirement income later. Getting a private pension pot while you are young is pain-free and extremely valuable for later in life.

I know, I know. It feels boring and far away. But the earlier you start planning, the more comfortable your retirement will be. Itâs because of an economic rule called âcompoundingâ. Every decade you can add to your pension timeline should multiply the amount of money in your retirement pot. To illustrate this point, Iâve used Nutmegâs pension calculator.
Starting early
If you want to have an annual retirement income of ÂŁ10,000 a year, youâll need to be paying in ÂŁ196 a month if you start when youâre 20.

If you start when youâre 30, youâll need to pay ÂŁ276 per month.

At 40 years old, youâll need to be paying ÂŁ416 per month.

Why do I need a private pension?
Youâll probably have a workplace pension, and a state pension. If youâve been paying your national insurance contributions for more than 35 years, you can claim the full state pension. You can check and see how many years youâve been paying here, you can also top-up missing years if you need to. The full state pension will give you an annual salary of ÂŁ8,767.20 or ÂŁ168.60 a week. For most people, this isnât enough to live off.
Your workplace pension should give you a top-up, but again, itâs unlikely to give you the retirement lifestyle youâre expecting. In 2018, the average workplace pension income was ÂŁ166 per week[1], or ÂŁ8,632 per year. Added together, a full state pension and an average workplace pension makes ÂŁ17,399 annually. Experts recommend that youâll need 80% [2]of your current income when you retire. If youâve got a shortfall, youâll need another source of income.
Open a Self-Invested Private Pension online in 15 minutes
Getting it sorted couldnât be easier, youâll have peace of mind and a brighter retirement ahead of you. Robo-advisors are a good way to get a SIPP set up quickly and hassle-free. Itâs also a fab way to start the year on a high.
A Self-Invested Personal Pension (or âSIPPâ) is a tax-efficient way of putting money aside for later in life. Youâll get a 25% top-up from the government, which is like free money. Youâll also be able to take out a tax-free lump sum of 25% once you hit 55 years old.
There are a lot of SIPP providers out there. Some will let you make your own investment decisions with your money, others will do it for you.
If youâd like an investment team to manage your pension pot for you, some good starting points could be:
Nutmegâs Personal Pension,
True Potential Investor,
Evestor
Moneyfarm
Wealth Simple
Youâll normally have to answer some questions about how youâd like your money to be managed. If youâre not sure, a good rule is to go with more equities such as stocks and shares (referred to as âmore riskâ) when youâve got more than 10 years to go until you retirement. They will help to protect your money against inflation, and give it a better chance of growing than bonds or debt instruments (known as âless riskyâ assets).
Adding as little as ÂŁ50 a month should make a difference to the kind of lifestyle youâll be able to have when you retire. These are your golden years, itâs how your grandkids or great grandkids could remember you. Itâs how youâll live as an older person. Take a little time to organise your finances now, while you have time on your hands to get it right. Itâll take 15 minutes and youâll have that reassurance.

This article does not constitute advice.
[1]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/822623/pensioners-incomes-series-2017-18-report.pdf
[2] https://www.investopedia.com/retirement/retirement-income-planning/