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Investing within a Self-Invested Personal Pension (SIPP) is one of the best ways to build retirement wealth in the UK. With these accounts, an investor can build a large pot of savings quickly and efficiently.
What is the secret of this type of investment account? Yes, there are three ways to increase wealth.
Free money from the government
Another major benefit of investing within a SIPP is that contributions often come tax-free. This is actually a reward from the government for saving for retirement.
Put in £800 as a basic rate taxpayer, and the government will top it up with another £200 (around 25% risk-free return). High-class and value-added taxpayers can fund additional tax relief.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
There is no tax on profits or income
Another big advantage is that there is no tax to pay on investment gains or dividend income. In a SIPP, investments can grow tax-free.
This aspect should not be ignored. If the investor had held Rolls-Royce shares in an ordinary investment account in the last three years and turned £2,000 into £25,000, they will face Capital Gains Tax of either £3,600 or £4,800 depending on which tax band they are in.
However, if they held shares in a SIPP, they would not have to pay a single penny of tax. That is a huge additional boost to their wealth.
Financial growth opportunities
Finally, many SIPPs offer access to a wide range of investments. Therefore, there are tons of opportunities to increase your retirement savings.
Rolls-Royce is just one example of a good investment in recent years. There are many other stocks (and funds) that have done well, and helped investors build future wealth.
Looking ahead, one stock that I think will do well (in the long run). CrowdStrike (NASDAQ: CRWD). It is widely regarded as the world’s leading cybersecurity company.
This stock is listed in the US but can still be held within a SIPP. Over the past three years, it has returned about 65% per year in US dollar terms but clearly past performance is no indicator of future results.
Looking back five years, however, I see great potential here. Because the cybersecurity industry is likely to see significant growth as artificial intelligence (AI) is adopted by businesses.
Some experts believe that cybersecurity could end up being bigger than AI. Many see the industry worth $1trn in the coming years.
What’s different about CrowdStrike is that it offers continuous cloud discovery and monitoring services. Additionally, customers benefit from community protection – if a new threat is detected at a London company, all other CrowdStrike customers around the world are protected from that same threat within seconds.
Now, this stock is expensive from a valuation perspective because the dividend is still small (the price-to-earnings ratio is about 100). This adds risk – investors should expect that the share price will fluctuate.
There are also many other risks to consider. These include competition from competitors, software problems, and failure to prevent cyberattacks.
But in the long term, I’m very happy here. I think the stock should be considered for a SIPP today while it is at a high.
