SIPPS - take control of your pension
An increasingly popular retirement option
The Finance Act 1989 first introduced Self-Invested Personal Pensions (SIPPs) to give personal pension holders greater investment freedom. SIPPs are available to both the employed and the self-employed and offer a wide range of investment opportunities, flexible income patterns in retirement and potential for providing more favourable death benefits.
SIPPs have become increasingly popular since the government introduced "income drawdown" in the Finance Act 1995. This means that income can be paid directly from the SIPP on retirement, rather than having to buy an annuity at the going rate. The Inland Revenue currently require an annuity to be purchased by age 75, but until then the member can continue to control the investment strategy of the SIPP and, subject to certain limits, the amount of pension which is actually drawn down.
Payment of contributions
All contributions paid by individuals, whether employed or self-employed are paid net of basic rate tax. The basic rate tax is reclaimed from the Inland Revenue and paid into the SIPP bank account on a monthly basis.
Any contributions paid by the company on your behalf are paid gross and can be treated as a business expense.
The Investments
There is a wide choice of investments available to a SIPP, including:
- Stocks and Shares quoted in the UK and Overseas;
- Unit Trusts, Investment Trusts and OEICs;
- Insurance Company Funds;
- Deposit Accounts;
- Commercial Property including syndicated property.
It is also possible for a group of SIPP holders to pool together their SIPP assets and jointly purchase a property for commercial use or purchase a syndicated property.
A SIPP can borrow to assist with a commercial property purchase or development.
We can advise you on the limits imposed on the amount which can be borrowed.
Whilst the choice of allowable investments is fairly wide, there are some restrictions which we can discuss with you.
In 2006 the investment restrictions are set to be relaxed although the rules are still to be finalised.
Drawing the Benefits
SIPP benefits may be taken at any age between 50 and 75. Up to 25% of the fund can normally be taken as a cash sum, free of tax. However, this may be subject to restrictions if all or part of the transfer relates to a previous company pension scheme.
The balance of the fund can be taken by way of "Income Drawdown". This means that the pension payments are made directly from the fund each year, within minimum and maximum levels on a basis set down by the Government Actuary's Department.
Pension payments can be made on a monthly, quarterly, bi-annual or annual basis in advance or arrears. The actual payments will be made net of income tax.
A key feature of a SIPP is that on death after commencement of benefits, but before purchase of an annuity, the whole of the remaining fund can be paid out as a lump sum less tax at 35%.
If you die before taking any benefits and have not transferred in benefits from another approved pension scheme the whole of the fund can be paid at the Trustees discretion.
If you have transferred benefits from a Company Scheme then in some situations only 25% of the value of the transfer can be paid out with the remaining monies being used to provide a spouse's or dependant's pension or income drawdown.
If you would like to investigate this option or to find out more, please e-mail or contact us for complete independent and unbiased advice.
Levels and bases of, and reliefs from, taxation are subject to change.
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Prior Knowledge
Caxton Point
Caxton Way
Stevenage
Hertfordshire
SG1 2XU
Tel: 01438 726464 |
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