What is a SIPP?
A SIPP, or Self Invested Personal Pension, is a pension fund
that gives you more freedom and flexibility over how you invest
your money and in a way that fits your risk criteria.
SIPPs work in a similar way as other pensions in terms of tax
benefits, contribution limits and retirement options. However, one
of the key advantages with SIPPs is the superior choice in
investments. In addition, you are in charge of your investments
allowing you to decide where to invest your money.
Since regulations surrounding UK pensions changed in 2006,
individuals have been entitled to pay as much as 100% of their
salary in the scheme each tax year as long as it does not exceed
£50,000 (2012/2013). If you are retired or become unemployed
for any reason, then you can continue to invest in to your SIPP but
it is limited to £3,600 a year.
Within a SIPP and your wider choice of investments to take
advantage of, you can build up a secure fund for your retirement.
You are also able to consolidate several different pension funds
together under one SIPP.
What are the benefits of a SIPP?
While most traditional pensions limit investment choice to a
short list of funds, normally run by the pension company's own
fund managers, a SIPP allows you to invest pretty much where you
- Collective Investment Funds - Unit Trusts, Investment Trusts,
Open Ended Investment Companies (OEICs), Insurance Company Managed
- Stocks and Shares - Equities, UK Gilts, Bonds and other fixed
interest securities, Futures and Options, Permanent interest
- Cash and Deposit
- Traded Endowment Plans
- Commercial Property
SIPPS have the same tax benefits as all other personal pensions
with the added extra of an upfront basic tax relief offered by the
government. This will give your contributions to your pension funds
a massive boost. For every 80p you contribute into your pension the
government will add another 20p, boosting the gross contributions
made by you. This tax relief is claimed on your behalf by your SIPP
provider and will automatically be added to your pension fund.
Under changes announced in the 2009 Budget, individuals are now
able to contribute as much as GBP255,000 each tax year to their
SIPP fund. As long as the fund does not exceed the life time limit
of GBP 1.8 million, you are able to take full advantage of your
SIPP allowing you to relax in your retirement safe in the knowledge
that your finances are maintaining you.
You will be entitled to take 25% of your SIPP fund as a lump sum
on commencement of retirement. The remaining 75% must be left to
provide you with your pension income. In addition, upon your death
the fund can be made available to your beneficiaries potentially
mitigating the 55% death benefits tax charge.
All investments within SIPPS will grow free of UK capital gains
tax and income tax.