SIPP Advice

 

Independent Advice on Self Invested Personal Pensions (SIPPs)

 

A Self-Invested Personal Pension (SIPP) is an arrangement within a UK personal pension scheme in which the scheme member has the power to direct how the contributions are invested. (Source: HMRC )

 

The main reason to choose a SIPP above a conventional personal pension is to exercise power over the type and range of investments bought; especially having the power to purchase commercial property either directly or with a mortgage.

 

 

SIPPs must be arranged for the sole purpose of providing an annuity , income withdrawal or cash lump sums on retirement of the member. In common with personal pensions, retirement can (ordinarily) occur between age 50 and 75 (Increasing to 55 in 2010/11).

 

Tax rules require 75% of the pension fund must be used either to purchase an annuity or to provide income withdrawal . The remaining 25% of the fund can be taken as a tax-free lump sum.

 

Members may make choices about what assets are bought, leased or sold, and decide when those assets are acquired or disposed of.

 

The range of assets includes:

 

•  Stocks and shares listed on a recognised exchange

 

•  Futures and options traded on recognised futures exchange

 

•  Authorised UK unit trusts and OEICs * and other UCITS ** funds

 

•  Unauthorised unit trusts that don't invest in residential property

 

•  Investment trusts subject to FSA regulation

 

•  Unitised insurance funds from EU insurers

 

•  Deposits and deposit interests

 

•  Commercial property (including borrowing to fund the purchase)

 

•  Ground rents

 

•  Traded Endowments Policies

 

•  Gold bullion

 

*OEICs: Open Ended Investment Companies
**Undertakings for the Collective Investment of Transferrable Securities

 

 
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The pensions industry has gravitated towards three industry terms to describe generic SIPP types:

 

1. Deferred.

 

This is a type of scheme in which most or all of the pension assets are held in insured funds (investment vehicles provided by large insurance companies). The deferral of self-investment or income withdrawal activity until a later date gives rise to the name. Most scheme members are usually under the age at which income may be withdrawn.

 

2. Hybrid

 

A scheme in which the assets and activities are held in mixed vehicles, based on an insured element. Some assets may be held in insured investment products, some assets and investments will be directed by the member themselves ('self-invested').

 

3. Pure

 

Pure SIPP schemes offer unrestricted access to all allowable investment asset classes and are usually more expensive to operate and own. These types of schemes are usually offered by small 'boutique' scheme administrators and often appeal to the more affluent segment of the retirement marketplace. Without an insured element, these schemes offer greater opportunity for the member to direct the investment activity themselves.

 

Contributions to SIPPs are treated identically to contributions to personal pensions. Individual contribution will receive automatic basic-rate tax-relief; higher-rate taxpayers can claim additional relief through their tax returns. Employer contributions are allowable against corporation or income tax.

 

Income from assets in the scheme will remain untaxed; although in common with other pensions the tax credit for UK income is no longer reclaimable. Growth is free from capital gains tax.

 

Pension income provided either from an annuity or via income withdrawal is taxed as earned income at the members' highest marginal rate.