To start up a SIPP an individual or their employer needs to approach an approved provider.
These are normally insurance companies or fund managers but a comprehensive list is publicly available.
You must use one of these providers to take full advantage of the tax benefits.
Once a provider has been chosen, the plan holder can then manage the portfolio themselves, or they can appoint a manager to act on their behalf.
One of the key benefits of a Self-Invested Personal Pension is the tax advantages.
Like all other personal pension plans, contributions to SIPPs are automatically exempt from basic rate tax.
If you are a higher rate payer, you can claim additional relief in your tax returns.
Similarly, if you have used your SIPP to invest in assets such as property, the income you receive is tax-free and is not subject to capital gains tax.
As with all pension plans, after retirement, the income that you draw-down will be subject to the usual income tax rates.
The money you earn from your investments is also allowed to be reinvested tax-free, up to a threshold £235,000.
Reinvesting your income is a great way of growing your pension pot without any upfront costs.
Another key advantage of a SIPP is its flexibility.
Unlike other tax-efficient saving schemes, a SIPP gives you the ability to invest in a wide variety of stock market properties so you can potentially access higher rates of return even if rates are low.
This will not be perfect for everyone, as SIPPs can be exposed to more risk, but for those who are not attracted to the rates offered by savings accounts and ISAs, SIPPs are a great alternative.