Money Minder UK

Self Invested Personal Pensions

Self Invested Pension Plan's (SIPP's) offer a cost effective and flexible alternative to a conventional personal pension scheme such as those offered by an insurance company.

In essence the Pension becomes the "Your Name" Pension Scheme rather than the "XYZ Life Assurance Company" pension scheme.

Therefore, a SIPP is an Inland Revenue approved �wrapper� that enables an individual to invest their contributions into many different types of investments and funds and offers far greater control over the way the funds are invested.

This allows an individual to benefit from investing in funds managed by the worlds most reputable fund mangers and even self select shares in companies of their own choice. (within Inland Revenue restrictions)

SIPP's are also able to accept transfers in from other pension schemes or a deferred pension from an ex-employer.

Freedom & Flexibility - A SIPP offers the freedom to choose where the funds are invested, within certain Inland Revenue restrictions.

SIPP's can also be a very cost effective option for individuals with large pension funds who wish to take a more active role in the way that their pension is invested.

There are generally no hidden charges or penalties as SIPP's will often have a very transparent charging structure that will include a known fee structure that is irrelevant to the size of the fund.

Individuals over the age of 50 (55 from April 2010) and under the age of 75, who are about to draw their pension and do not wish to lock themselves into an annuity, will often use a SIPP when moving into 'Income Drawdown' to provide a more flexible way of drawing income in retirement. Click Here for more details on 'Income Drawdown'

Specific advantages to those in Business

Unlike Personal Pensions, commercial property and land may be acquired by the pension fund, and this is often very a valuable option for a sole trader, partnership or directors of a Ltd Company who wish to purchase their own commercial premises.

These individuals can use a SIPP to unlock the value of their pension funds to buy the premises or land and then pay a rent to the pension fund.

It is also possible to increase the funds available to purchase a commercial property by using a mortgage.

A SIPP may be an attractive option to the self-employed, high earning employees with no company pension arrangements and fee orientated professionals. (Individuals, Partnerships and Directors of Limted Companies)

SIPP's are particularly helpful to those who wish to: -

  • Invest significant single or regular contributions (subject to Inland Revenue maximums)
  • Transfer funds from previous pension arrangements
  • Acquire business premises
  • Personally control the investment of their own funds
  • Find an alternative to the restrictive pension products generally on offer from the life assurance industry

Just like Personal Pension Plans that are provided by many life assurance companies, the advantage that a SIPP has over other types of investment, is the considerable tax concessions that your contributions and investment funds receive.

Firstly, your contributions receive tax relief based on the highest rate of tax you pay. Secondly, where the money is invested, it grows free of Capital Gains and Income Tax.* No other UK investments offer all of these advantages.

*(Apart from a 10% tax liability payable on the dividends of UK Company Shares that cannot be reclaimed)

The investments held within the SIPP are regulated by the Inland Revenue. Some examples of permitted investments are listed below.

The investor can choose the degree of involvement they wish to have in managing the accumulating fund.

Self Invested Personal Pension Approved Investments

  • Commercial Property (with or without a mortgage)
  • Agricultural Land
  • Authorised Unit Trusts & OEIC's
  • Insurance Company Managed Funds & Unit Linked Funds
  • Exempt Unauthorised Unit Trusts
  • Building Society Permanent Interest Bearing Shares (PIBS)
  • Deposit Funds (e.g. Bank or Building Society Accounts)
  • Traded Futures and Options ( with the exception of certain derivatives)
  • Stock Exchange Listed Companies
  • Companies Quoted on a Recognised Overseas Stock Exchange
  • USM Companies
  • AIM Companies
  • Government Securities
  • Quoted Debentures
  • Loan Stocks
  • Second Hand Endowment Polices

Whilst there are few specifically prohibited investments for self invested pensions, the Revenue restricts the range of tax-exempt investments allowed in a SIPP. The following investments are subject to prohibitive tax penalties:

Self Invested Personal Pension Tax Restricted Investments

  • Residential Property
  • Unlisted shares
  • 'Pride in Possession' assets such as paintings, antiques, vintage cars
  • Premium Bonds
  • Gold Bullion

Under current legislation, the benefits may be taken at any time between the ages of 50 and 75, (55 from April 2010) unless you are in a job where it is customary for you to retire early, and you have agreement from the Inland Revenue.

A member may continue to work whilst drawing pension benefits during this period.

At retirement not all the benefits have to be taken at once.

The purchase of an annuity with an Assurance Company can be deferred until annuity rates are more favorable.

An income can be paid directly from the invested fund using 'income drawdown' Click Here for more details on 'Income Drawdown'

Up to 25% of the accumulated fund can be taken as tax free cash lump sum with remainder being used to provide a retirement income.(Tax free cash amounts may vary if the pension includes transferred funds brought into the SIPP)

Since April 2006, there have been significant changes in the way that people can to start to enjoy the benefits of their accumulated pension fund.

You should start investigating your retirement choice's at least 3 months before you are due to retire so that you have enough time to consider the pros and cons of all of the different options available to you before making your final decision. If you would like some help, please contact us.

If you would like to look further into investing into a Personal Pension plan, you can contact us at info@money-minder.com or call us on 0845 218 9194 between 8am and 8pm Monday to Friday and 10 am to 2pm on Saturdays when we will be happy to discuss your requirements further.

We are able to offer a full independent financial advice service and recommend appropriate solutions to your needs that will take account of your personal financial circumstances.