SIPPS (Self invested Personal Pension Scheme)
What is a SIPP?
A Self-Invested Personal Pension (SIPP) is the name given to the type of UK government-approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue and Customs (HMRC). It is a commonly chosen option for those who do not meet the required criteria for a QROPS.
SIPPs are a type of Personal Pension Plan. Another subset of this type of pension is the Stakeholder Pension Plan. SIPPs, in common with personal pension schemes, are tax "wrappers", allowing tax rebates on contributions in exchange for limits on accessibility. The HMRC rules allow for a greater range of investments to be held than Personal Pension Plans, notably equities and property. It ensures that individuals have freedom and flexibility, enabling them to choose how their money is invested.
How does a SIPP work?
A SIPP allows you to decide what type of investments to invest in depending on your risk profile, timeframe until retirement and unique individual requirements and financial goals. Regulations regarding UK pensions changed in 2006 and you can now pay as much as 100% of your salary into the scheme each tax year, providing it does not exceed £40,000 (2013/14). Even if you retire or are unemployed you are still entitled to invest in your SIPP, but with a limit of £3,600 per year.
The benefits of a SIPP
A SIPP gives you freedom, flexibility and control of your pension. Predominantly members of a company pension scheme have very little control and commonly no idea where their pension money is invested or even if its growth is actually beating inflation. A SIPPS can often be something may individuals have to consider as some of the UK's largest companies each year close their final salary schemes to all members, resulting in members having to look at taking their pensions into their own hands.
There are numerous reasons why SIPPS are becoming increasingly popular:
A wide range of investments are allowed, including stocks, shares, unit trusts, investment trusts, and even commercial property which allows individuals to put business premises and a possible rental income into the pension fund.
A SIPP allows the individual along with their financial adviser to actually choose an investment, depending on their own individual investment risk profile and timescale to retirement.
Many individuals often have several small pensions that they can even of forgotten about or are often actually losing value due to the negative effects of inflation and minimalistic growth. The National Association of Pension Funds and the Trades Union Congress believes that an average UK person changes jobs eleven times during their working career. With a SIPP you can consolidate all of these pensions into one efficient scheme, allowing easier management, choice, flexibility and ultimately, better control.
Members of a SIPP can take income drawdown. This means that an income can be taken from the fund (subject to certain limits) whilst leaving the remainder of the fund to grow and increase in value. An annuity does not have to be purchased.
SIPP trustee fees are usually very low and are paid on an annual basis. These can often be as low as a few hundred pounds per year. Access to funds, investment opportunities and other collectives or shares is generally available through platforms, offshore portfolio bonds or life wrappers. This allows access to a much more vast range of assets at lower charges than individuals can achieve.
A SIPP Administrator will claim basic rate tax-relief for the member if they have any UK earnings. For example- If £100GBP is invested, the member only has to contribute £80GBP and the Administrator will ensure that the UK Government contributes the difference. Higher rate tax-payers can also obtain further relief through a UK Self Assessment tax return.
To discover more information on SIPPS
For more information on SIPPS please consult with one of our Pension Specialists or Wealth Managers who will be able to advise as to whether you are able to transfer to a QROPS or SIPPS. They will be able to guide you through a step by step process, explaining all of the benefits you may have access to.