What is a SIPP?
SIPP stands for Self-invested Personal Pension. A SIPP is a type of personal pension and is designed to provide an income in later life. You make contributions into SIPPs and receive tax relief in the same way as other pensions. The key difference is that you get much greater control over saving for retirement because a SIPP gives you more freedom to choose how to invest your retirement savings and manage them over time.
With a SIPP
- You gain access to a much wider choice of investments including the same high quality investments that you may already have in an ISA or other type of investment account
- It is simple to switch between investments to make sure your pension is always working as hard for you as it should
- You won’t waste unnecessary money on fees if you choose the right SIPP
- You can bring your existing pensions together into a SIPP, which should make your retirement savings much easier to monitor and manage
Different types of SIPPs
There are different types of SIPPs available:
- Full SIPP – a full SIPP allows you to hold a wide range of investments from shares and funds to structured products and commercial property
- Low-cost SIPPs – these are sometimes referred to as vanilla or ‘lite’ SIPPs. They offer more limited investment choices than full SIPPs (although still substantially more than most other pensions). As the name suggests, they have lower costs for investors than full SIPPs. The Best SIPP is a low-cost SIPP
Who can have a SIPP?
Almost anyone who is resident in the UK and under the age of 75 can have a SIPP. This includes children. You can also open a SIPP for someone else, for example a partner.
SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you then a SIPP might not be right for you. Self-directed investors should regularly review their SIPP portfolio, or seek professional advice, to ensure that the underlying investments remain in line with their pension objectives. Prevailing tax rates and the availability of tax reliefs are dependent on your individual circumstances and are subject to change.
Is a SIPP right for me?
SIPPs are right for those who want to be in control of their pensions and who want the freedom to choose the very best investments to create a future income.
SIPPs are often thought of as pensions specifically for people with a lot of money and knowledge about investing. This was true when they first launched but competition between SIPP providers has driven down costs and there are now SIPPs available that are amongst the best-value pensions around.
You don’t need a large pension fund to benefit from a SIPP. And while SIPPs certainly suit those keen to manage their own money, you don’t have to be confident with – or even interested in – investments because many SIPP providers offer financial advice or investment management services alongside SIPPs. With a SIPP you can choose to have as much or as little involvement with your SIPP investments as you want.
SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you then a SIPP might not be right for you. It is also important to remember that you can’t access pension Money until you are 55.
Benefits of a SIPP
What sets SIPPs apart from other personal pensions is that they give you access to a much wider choice of investments and they give you the flexibility and freedom to manage these investments. With a SIPP you can also bring together your existing workplace or personal pensions in one place, making them much easier to monitor and manage.
Unlike traditional pensions, which have limited investment choices, SIPPs give you access to the same high quality investments that you are probably already choosing for your ISA or other investment accounts. You have the freedom to choose from a vast range of funds, investment trusts, and individual shares.
Why choice is important
The choices you make when investing for the future are likely to have a big impact on the amount of money you have in later life because different investment options are capable of producing very different results over the long time horizon that your pension is invested for.
Flexibility to adapt
It is easy to move your money from one investment to another within a SIPP, which gives you the flexibility to respond both to your evolving needs and the changing world around you. For example, you can adapt investment choices to match market conditions or switch into funds that are consistently outperforming.
Competitive and transparent costs
SIPPs can be among the most competitively priced pensions, which means more of the money you are saving will go towards your future income rather than vanishing in fees.
Combine existing pensions into one
If, like most people, you have collected a number of workplace and personal pensions during adult life, a SIPP can make an excellent home for these. You can bring them together into one pension, which will make them much easier to monitor and manage.
The freedom to choose your level of involvement
With a SIPP it’s easy to pick the investments you want but if you’d like help doing this or would rather leave the decision to an investment professional there are SIPPs, including A SIPP, that offer the flexibility for you to do this.
SIPPs have the same tax benefits as other personal pensions, which makes them an excellent way to save for retirement. Find out about the tax benefits of a SIPP buy asking.
How much can I pay into a SIPP?
ANNUAL PENSION CONTRIBUTIONS
Every year you can put aside as much as you earn in pensions, up to a maximum of £50,000.
CARRY FORWARD YOUR PENSION
CARRY FORWARD RULES - THE ANNUAL ALLOWANCE
Although annual pension contributions are now capped at £50,000, (see lifetime pension allowance changes) the new ‘carry forward’ rules effectively allow investors to add up to £200,000 to their pension pot in the current tax year 2013/14 if they have made contributions below £50,000 in any of the preceding three tax years.
HOW CAN CARRY FORWARD BOOST YOUR PENSION FUND?
In the example below Henry's anticipated 2013/14 earnings is £300k, he has accrued £350k. Across the current tax year, and the three previous tax years, he has made the following contributions:
The maximum you can contribute to a pension is £50,000 in any one tax year, and this amount is known as the Annual Allowance. When HMRC decides whether or not someone has breached the Annual Allowance, they do not automatically consider any contributions made from 6 April to 5 April, instead they base it on an individual’s input period. It is the contributions made during the input period that are then assessed against the £50,000.
How long does a pension input period last?
Each input period does not have to be 365 days long, the only rule is that only one input period can end in any one tax year.
When is the pension input period?
Most SIPPs including the SIPP will use a default input period of 6 April to 5 April, so in practical terms this makes no difference. However, your SIPP provider may allow you to request in writing a change your input period.
Pension input period example
For example, client X has earnings of £150,000 in 2012/13 and would ideally like to contribute £100,000 to a pension. Their default input period is 6 April to 5 April, and on the 30 April they make a pension contribution for £50,000. If they do nothing else their input period will end on 5 April 2013 and will be the only input period for 2012/13, so the £50,000 will be assessed against the annual allowance for 2012/13.
They could choose to close their input period on 1 May 2012. For 2012/13, the client has an input period from 6 April to 1 May during which they contributed £50,000, this will be assessed against 2012/13 annual allowance.
Their new input period begins on 2 May, and must remain open until at least 6 April 2013, so you do not breach the rule of having 2 input periods ending in the same tax year. The client decides to let the input period run for 12 months so it closes on 1 May 2013.
The client could then make a further £50,000 pension contribution on 3 May 2012. This means they have contributed a total of £100,000 in the 2012/13 tax year and this will be assessed against earnings for 2012/13 of £150,000 when HMRC calculate the tax relief due for annual allowance purposes, the second contribution of £50,000 falls into the input period 2 May 2012 – 1 May 2013, and because this ends in the 2013/14 tax year it will be assessed against annual allowance for 2013/14.
This has allowed the client to effectively contribute double the allowance for 2012/13 tax year without any adverse tax consequences. They can only do this once. The Best SIPP will allow you to alter your input period if you want to take advantage of this flexibility.
While you can save as much as you like towards your pension, there is a limit on the amount of tax relief you can get. You have a Lifetime Allowance, which is the amount of pension savings you can build up over your life that will benefit from tax relief. The Lifetime Allowance is currently £1.5 million. If the value of all your pensions together exceeds this when you come to use them, you will have to pay tax on everything above £1.5 million.
The Lifetime Allowance is reducing to £1.25 million from 6 April 2014. So those who have already accumulated substantial pension funds are not penalised, individuals can apply to HMRC for their lifetime allowance to be ‘protected’. If you are affected by this, or want more information on retirement planning, please call 0800 0141663
The Lifetime Allowance is currently £1.5 million. This is the maximum value that you can accumulate within all your pensions before incurring tax on “excess benefits”.
What are the pension allowance changes?
If the value of all your pension schemes exceeds £1.5 million the surplus will incur tax at 55% or 25%, depending on whether you draw the benefits as a lump sum or as income
The lifetime allowance is reducing!
Budget 2013 confirmed that the Lifetime Allowance is reducing to £1.25 million with effect from 6 April 2014. This will affect you if the value of your pension benefits is projected to exceed £1.25m when you take benefits.
Protect your pension
It will be possible to apply for Fixed Protection which will preserve your Lifetime Allowance at £1.5m. However you will not be able to contribute any further amounts into your pension or protection will be invalidated. Protection will be available later this year and applications must be received by HMRC by 5 April 2014.
When is the deadline for fixed protection?
There was an opportunity to apply for Fixed Protection to fix your limit at £1.8 million. The deadline for applying for ‘Fixed Protection’ has passed. If you make further contributions you will lose your entitlement to fixed protection and your limit will be the reduced rate of £1.5 million. Worried you may be over the limit? Don't hesitate to call us on 0800 014 1663
Many employers will contribute to a SIPP. However, it is important to consider the benefits you may be receiving with your existing pension.
What to consider before transferring a pension?
You have chosen to undertake this pension transfer on an Execution Only basis. This means:
- you have not asked for or received advice; Unless Your current provider requests Advice to be given we will surply an IFA, example finnal salery pensions.
- it is your decision alone to proceed with the transfer;
Before you consider transferring your pension you should be aware of the implications this may have. We have therefore produced the following notes to help you decide if this is the right decision for you. EPP wealth ltd reserves the right to refuse to accept (or at least to con-sult with you further) pension transfer instructions where it is advised of information that might indicate the transfer may not be in your interests (for instance, if we are made aware that the existing pension contains benefits that might be lost on transfer) although, as noted above, as this is an execution only transaction the responsibility for the suitability of the transaction is yours alone.
You may ring us for guidance on pension issues generally if you are unsure of any technical matter either in this note or elsewhere. But if you consider you would benefit from specialist pension transfer advice, specific to your circumstances, this is available from our Financial Planning team. Such work is, however, normally carried out on an agreed fee basis.
Is the new plan more expensive than your current plan? Does your current plan provider impose any exit penalties or charges if you transfer or cease contributions?
The benefits of your new pension arrangements and service should outweigh any increase in cost to you or be worth the fees / penalties incurred. You should ensure that the transfer is not going to disadvantage you financially.
GUARANTEED ANNUITY RATES
Does your existing pension plan provide an entitlement to a Guaranteed Annuity Rate or a Guaranteed Investment Return?
Although rare, some pensions have inbuilt guarantees of investment growth or annuity rates; these could be lost on transfer.
Has your current pension exposure to a With Profits fund?
You may have attractive bonus rates that could be lost on transfer. Moreover, the transfer value of With Profits funds may be subject to something called Market Value Reduction, which will reduce the size of your pension fund available to transfer.
Does your existing pension scheme provide life assurance, waiver of premium (a form of premium insurance) or the option of an early retirement age?
These may be lost on transfer. Any subsequent deterioration in your health, since these additional benefits were provided, may mean that replacement cover will be more expensive or difficult to obtain.
FINAL SALARY PENSIONS SCHEMES, SECTION 32 POLICIES AND OTHER OCCUPATIONAL PENSION SCHEMES
Do you have a Final Salary Pension Scheme or a Section 32 policy?
It is generally not advisable to transfer benefits built up in a Final Salary Pension Scheme or Section 32 policy and we will not accept these pension transfers on an Execution Only basis. Other Occupational pension schemes (including Executive Pension Plans) should be similarly checked carefully to ensure that valuable benefits are not being lost. In particular, you should check the amount of tax-free cash your current pension allows you to take, which may exceed the 25% limit allowed under normal pension rules.If you want to consider this still as a transfer you will need to have a full indepenant report carried out buy a independant IFA..
Will the length of time your fund is invested offset any cost or lost benefits? If you are close to retirement it may not be worth considering a transfer; ask yourself whether the new service will provide the options you require in retirement.
During the pension transfer period you may be exposed to fluctuations in the value of your pension due to market volatility.
Pension transfers can sometimes take a while to complete. There may be significant changes in market prices during this period which may affect your pension value, in particular you will not benefit from any rise in markets whilst your pension fund is not invested.
This list covers some of the main considerations but is not exhaustive. Your decision will depend on your personal circumstances and objectives, and the characteristics of your current pension plan. Your current plan provider/administrator will be able to provide information about your current pension plan. Information about pension transfers at www.moneyadviceservice.org.uk
All costing’s of A sipp depends on the type of Sipp you take. This also depends if you will need a IFA to review your pension and carry out a report on your current pension for more information on fees please submit your personal details and a consultant in your area will call you.