"If there was ever any doubt about whether to save in a
pension, there can be none now. The government says that saving for retirement
is a "personal responsibility", which means that we can no longer rely on help
from the state in retirement."
Rebecca O'Connor in The Times Online, January
19, 2008
"The government today announced that it would be removing
the shackles on £100 billion of pension savings built up over the past 20 years.
It said "people holding money in protected rights pension pots will be able to
transfer it to self-invested personal pensions (Sipps), which offer a much
wider range of options". The government now feels able to permit such transfers
because all personal pensions, including Sipps, are regulated by the Financial
Services Authority."
Mark Atherton in The Times Online, June 27, 2008
What is a SIPP?
Introduced in 1990, a SIPP (self-invested personal pensions)
is a pension scheme that gives you more control over your pension than if you
invest solely via a traditional pension company. A SIPP is designed with you in
mind:
- Are you an entrepreneur?
- Are you a self-employed professional?
- Are you a senior business executive?
- Are you a director of your own company?
- Or do you just want to be more involved in the day-to-day running of your pension fund?
SIPPs can provide a tax-efficient wrapper for planning your retirement, with tax relief on money going into the SIPP, no capital gains tax on any investment growth within the SIPP and a tax-free lump sum when benefits are taken out.
You can choose how your pension fund is invested. You and/or your adviser decide your financial goals. You and/or your adviser decide how to spread your investment risk and you and/or your adviser can specifically select investments to meet your financial requirements.
A SIPP can offer flexibility of investment choice: your investment portfolio can encompass cash, commercial property, shares, hedge funds, private equity, gilts, REITs and bonds. You have the widest range of investment options with a SIPP.
You can choose to contribute up to 100% of your income with full tax relief on the total, subject to an annual allowance. This tax year that equates up to an annual amount of £235,000.
Contributions to your SIPP can be made by employers, employees and self-employed persons. You can maximise your investment potential and cut your tax liability by up to 40%. Tax relief can be two-fold: on contributions and on investment growth (excluding UK dividends).
For example, turn a £24,000 personal saving into a £40,000 personal saving:
1. Invest £32,000 to the SIPP
2. Tax relief of £8,000 is added in direct from the Revenue
3. Amount invested in your pension is now £40,000
4. Reclaim £8,000 back through your tax return (higher rate tax payer)
5. Effective cost of investment was only £24,000
With a SIPP you will enjoy a wide range of retirement benefits. These can be taken anytime from age 50 (until 31 March 2009 where the age will rise to 55). You can enjoy taking a 25% tax-free lump sum payment, with the rest used to provide a taxed pension.
However, you do not have to do this by buying an annuity from an insurer (the traditional way), and can instead draw an income direct from the SIPP subject to an annual maximum. And now you no longer have to purchase an annuity at 75, you can continue to draw your income directly from the fund subject to tighter limits (called an Alternatively Secured Pension).
You are free to bring together several different pensions under the one SIPP umbrella via transfer. You can consolidate into one SIPP, or have different SIPPs for different family members.
You know your needs, you know your financial desires and you can take control, with a SIPP. There are many SIPPs in the marketplace and you need to ensure you get the right one for you, some are restrictive and some are fully open plan.
An initial set-up fee is payable when your SIPP is established. Annually, an administration fee is payable and, for those schemes with high activity, transaction fees are applicable.
So if you are an individual, a partnership, interested in property investment or want to consider a bespoke company pension scheme a SIPP could provide you with the framework to achieve your retirement goals.
Christine Hallett is chief executive of Pointon York Sipp Solutions. For more information visit www.sippsolutions.com
Pointon York SIPP Solutions is an independent SIPP service provider. It does not give advice and would always recommend individuals seek independent financial advice before making decisions about their financial plans
