As an umbrella worker, you’re already taking control of your career by choosing flexible working arrangements. But have you thought about taking control of your pension too? If you’ve come across the term ‘SIPP’ and wondered what on earth it means, you’re not alone. Let’s break it down in plain English.

What Exactly is a SIPP?

SIPP stands for Self-Invested Personal Pension. Don’t let the fancy name put you off – it’s simply a type of personal pension that gives you much more control over your retirement planning. Think of it as putting you in the driver’s seat when it comes to building your ‘future you’ fund.

The pension world is notoriously complex and full of jargon, which means many people don’t fully understand their options. Research shows that many people are retiring with far less than they expect or need, which is why it’s so important to understand what’s available to you.

Why SIPPs Make Sense for Umbrella Workers

As an umbrella worker, you’re essentially self-employed in many ways, even though you’re technically an employee of the umbrella company. This unique position means SIPPs can be particularly useful for you, and here’s why:

Flexibility with Contributions

Your income probably varies from contract to contract, which means your pension contributions need to be flexible too. With a SIPP, you can contribute when you can afford to and skip contributions when money’s tight. This flexibility makes it much more manageable than rigid pension schemes that expect the same amount every month.

Investment Choice

With a SIPP, you get to choose how your money is invested. You’ll have access to thousands of funds, investment trusts, exchange-traded funds (ETFs), bonds, and individual shares. This means you can build a portfolio that suits your needs and risk tolerance.

If that sounds overwhelming, don’t worry – there are tools and resources available to help you make informed decisions, including curated fund lists and guidance on suitable investments for different situations.

Bringing Your Pensions Together

Here’s something many umbrella workers will relate to – you’ve probably worked for several different companies over the years, each with their own pension scheme. This often leads to having multiple pension pots scattered around, and some might even be forgotten completely.

Research suggests that 4.8 million pension pots were considered ‘lost’ among the UK population in 2023, with nearly 1 in 10 workers believing they could have lost a pension pot worth more than £10,000.

A SIPP lets you bring all these pots under one roof, making your retirement savings much easier to manage. Just make sure you don’t lose any valuable guarantees when transferring – it’s worth checking the details first.

Save Money on Fees

Consolidating your pensions could also save you money. Some pensions, especially older ones, have higher charges or fixed policy fees. By bringing everything together in a SIPP, you could reduce the cost of managing your pension, meaning more of your money stays in your pot to grow.

Don’t underestimate how much overpaying on fees can impact your wealth over time – it can make a significant dent if left unchecked.

Tax Benefits That Actually Matter

SIPPs come with some excellent tax advantages that are particularly relevant given current tax pressures:

• Any investment growth within your SIPP is free from capital gains tax
• You don’t pay tax on dividends received within the SIPP
• You get immediate tax relief on your contributions at your marginal rate

This means you get an immediate 25% government boost on contributions, and if you’re a higher-rate taxpayer (paying 40% or 45% tax), you can claim back the extra through self-assessment.

These tax benefits can give your retirement pot a sizeable boost over time, improving your long-term financial security.

Keeping Your Options Open

One of the best things about SIPPs is that they’re dual-purpose. You can use them to build up your retirement fund and then draw income from them later. Unlike some pension arrangements that lock you into specific withdrawal patterns, SIPPs let you take money out as and when you need it (from age 55, rising to 57 from 2028).

This could mean taking a regular income to replace your salary, making one-off withdrawals for specific needs, or a combination of both. This flexibility is particularly valuable for umbrella workers who are used to managing variable income streams.

Things to Consider

SIPPs are designed for people who are happy to make their own investment decisions. If you prefer a hands-off approach to investing, a SIPP might not be the best fit for you.

Remember that investment values can go up as well as down, and you could get back less than you invest. You also can’t normally access the money until you’re 55 (57 from 2028).

If you’re unsure whether a SIPP is right for you, it’s worth speaking to a financial adviser. If you’re over 50 and have a defined contribution pension scheme, you can also get free guidance on your options through Pension Wise.

How SmartWork Can Help You Set Up a SIPP

The good news is that SmartWork makes setting up pension contributions, including SIPP payments, straightforward. We can handle the administration of transferring your pension contributions directly to your chosen SIPP provider.

With payments sent by BACS around the 10th of each month, you can choose either a fixed percentage of your contract income or a fixed amount per week or month, depending on your billing cycle.

We work with all major SIPP providers, including Interactive Investor, AJ Bell, Hargreaves Lansdown, and many others.

We’ve also partnered with Interactive Investor to offer a streamlined setup process for our contractors who don’t have one set up yet.

The service costs £25 per month (or £5 per week), and while we can’t provide financial advice, our team can guide you through the setup process. To get started, our workers are provided a Private Pension/SIPP form or they can contact their dedicated business manager for assistance.

Taking the Next Step

As an umbrella worker, you’re already demonstrating that you value flexibility and control in your working life. A SIPP could give you that same flexibility and control over your retirement planning.

The key is to start thinking about your pension not as some distant, abstract concept, but as your ‘future you’ fund – money that’s going to support the lifestyle you want when you’re ready to step back from work.

With the right approach and the flexibility that SIPPs offer, you can build a retirement fund that works as hard as you do.

Important: SIPPs are aimed at people happy to make their own investment decisions. Investment value can go up or down and you could get back less than you invest. You can normally only access the money from age 55 (57 from 2028). We recommend seeking advice from a suitably qualified financial adviser before making any decisions. Pension and tax rules depend on your circumstances and may change in future.

This information is for educational purposes only and should not be considered financial advice.