SIPPs - Self Invested Personal Pensions

Has your employer recently closed their final salary pension scheme or is there a threat of this happening? Are your retirement planning needs slightly unusual or do you simply want more flexibility about the investments you make? If you can answer ‘Yes’ to any of these questions, now is the time to review your pension situation and evaluate your retirement provisions. With the varying performance of pension funds, a Self-invested Personal Pension (SIPP) could be the ideal solution!

Increasing control

SIPPs were introduced for investors who did not fit the typical mould. They are particularly attractive if you feel that using a traditional pension, with its limited range of funds, is too restrictive. Many people use SIPPs because they have substantial retirement funds and require a more individual approach to pension planning. Typically, they also want to take more control of the investments behind their pension funds.

Tax advantages

Contributions receive tax relief at your highest rate(s). This means that if you are a higher rate taxpayer, you need contribute only £60 of your own money to get £100 invested, thanks to the £40 you will get back from the taxman. Basic rate relief is credited to the fund, while the higher rate relief has to be claimed back from the Inland Revenue.

Diversified assets

You can actively choose where your money is invested or we can help you with the investment decisions. Your contributions can purchase investments over a wide variety of assets, which could include insured funds with different pension companies, direct investment into shares, open-ended investment companies, unit and investment trusts. Another investment could be the purchase of a property to use as your office and then rent it back to yourself. This provides you with an unparalleled choice in creating your own pension portfolio.

SIPPs offer tremendous investment flexibility, enabling a very personalised portfolio to be created that has the ability to change the investment strategy quickly.

Retirement stepping-stone

SIPPs are commonly used as a stepping-stone into retirement and for taking benefits through pension fund withdrawal. The 1995 Finance Act introduced a facility that allows you to draw an income from your SIPP (this also includes personal pensions arrangements) but to defer the purchase of an annuity until you reach the age of 75, at which time an annuity must be purchased outright.

To SIPP or not to SIPP? – that is the question.

Read the following questions and answer ‘Yes’ or ‘No’ to find out whether a SIPP could be the right solution for your retirement needs.

1. Do you find traditional pension plans, for example those offered through insurance companies, too restrictive for you?

2. Would you like to have more control of the investments in your pension fund?

3. Do you have a substantial amount in your pension fund?

4. Do you contribute modest sums to your pension out of your monthly income?

5. If you are approaching retirement, do you want to have the freedom to vary the income within wide limits from your pension fund?

6. Do you prefer to leave your investment decisions to someone else?

7. If you are approaching retirement, do you prefer the idea of having a definite regular income?

8. Is your pension fund your only source of retirement income?

9. Do you need to allow a definite income for your dependants after you die?

10. Do you want to avoid having all your investments in one place, but at the same time dislike the idea of having to deal with several different pension policies?

Scoring:
Questions 1-5: If you answered ‘Yes’ to three or more of the first five questions, then a SIPP could well be suitable for your pension needs
Questions 6-10: If your answer was ‘Yes’ to three or more of questions six to ten, then a SIPP may not be right for you.

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