What is a SIPP?
A SIPP, a Self Invested Personal Pension, is a special type of personal pension which can be established by any individual of any age, even if not actually employed or not resident in the UK.	Click for PDF copy of page

The PY SIPP is one of the most open pension frameworks that exists today and offers the most flexibility of any pension product in the marketplace - a scheme where the member can have as much or as little involvement in the control and decisions regarding their investment strategies within the scheme as they wish.

When considering a retirement plan it is always advisable to seek professional advice.

Eligibility:

Any individual can pay contributions into The PY SIPP. However, tax relief is only received on contributions if the individual is what is called a 'relevant UK individual' (someone who has taxable UK earnings, or is either resident in the UK, or has been in one of the last five tax years).

An individual may also establish a SIPP w hilst contributing to an occupational pension scheme at the same time.

Paying Less Tax

Contributions

Transfers

Flexible Investments

Emerging Benefits

Paying Less Tax

Pension arrangements in general are a tax efficient way of making provision for income in retirement.

• Contributions you make to a SIPP qualify for tax relief at your highest rate. Currently this means that if you pay tax at 40% on part of your income, then for each £1000 contributed into a SIPP – the Government give you back £400!! We would reclaim basic rate at 22%, and the member would claim the additional 18% through their self assessment form.
• Growth on investments made through a SIPP are free from Capital Gains Tax.
• At retirement, in most cases up to 25% of the value of the SIPP can be paid as a lump sum TOTALLY FREE of income tax!
• Contributions made to a SIPP by an Employer generally qualify for Corporation Tax relief.
• In certain circumstances on death the whole of the value of the SIPP can be paid out to the beneficiaries TOTALLY FREE from Income Tax and Inheritance Tax.
• There is a wide range of Investment Asset classes that can be used.
• There is now no compulsion to purchase an annuity at age 75

There is no limit on the level of contributions you can make to your SIPP, although HM Revenue & Customs do limit the level that can attract tax relief.

The tax relief available on contributions within a SIPP is exceptional. A member can now contribute up to the level of their UK taxable earnings (called ‘relevant UK earnings’) every tax year and get full tax relief.

There is NO cap as a percentage of earnings and NO ‘earnings cap’ (although contributions to other pension schemes do count towards this limit).

For more detailed information, please press here.

Transfers

Whether or not the member is eligible to pay contributions, they may wish to transfer other pension benefits which they have already earned in another pension scheme to a SIPP. The reasons for doing this are varied and may include some of the following:

• They may wish to move benefits away from schemes of former employers and take more control of them.
• They have several separate retained pension benefits which they want to consolidate under one arrangement.
• They believe they and /or their advisors can produce a better growth on the existing funds than those currently managing them.
• They want to get a good starting sum in their SIPP in order to use it as the deposit for a commercial property.
• They are unhappy with the service they are currently receiving from their existing pension provider/manager.

In the majority of occasions a transfer value can be paid into a SIPP. However, it is an area on which we would recommend the member seeks advice. If the retained benefit is already in flexible investments they can normally be transferred as they are (in specie) rather than having to encash.

Flexible Investments

The PY SIPP offers the maximum choice of investments of any type of pension scheme and there is no tie to any one particular investment house. From 6th April 2006 onwards, the HM Revnue & Customs rules do not generally restrict the types of investments a SIPP can invest in, and there is no longer a detailed list of permitted investments.

There are however tax consequences if we do invest in certain things and stringent benefit-in-kind rules where a member / family etc are provided with the use of a scheme asset. But all of the usual asset classes stay in-tact.

• Direct investment into stocks and shares.
• Direct investment into authorised UK Unit Trusts, Investment Trusts and many OEICs.
• Direct investment into futures and options on a recognised futures exchange.
• Insurance company funds.
• Deposit accounts in any currency, held with a UK based deposit taker.
• Traded endowment policies provided they are sold by an authorised person.
• Overseas stocks and shares quoted on a Recognised Stock Exchange.
• Commercial Property (includes land, offices, shops, industrial units etc.).
• Ground rents (related to commercial property only).

You can also invest in

• Unlisted Shares.

Investment in the following assets classes, whether directly or indirectly, will trigger heavy tax penalties

• Certain Personal Chattels (called 'tangible moveable assets'), such as Art, Antiques, Racehorses, Vintage and Sports Cars, Fine wines etc.
• Residential Property with a few exceptions.

Because of this flexibility and diverse range of investment opportunities it is important to obtain the best possible advice when considering some of the less mainstream investments.

Falling foul of the HM Revenue & Customs rules could mean rearranging purchases with the additional expenses and timing difficulties and could threaten the tax exempt status of your fund. It could also lead to you becoming personally liable to an unauthorised payment charge of 40% (possibly 55%), and your SIPP being hit by a scheme sanction charge of anywhere between 15% to 40%.

So, stick to the straight and narrow and seek professional advice from a reputable financial advisor. Pointon York SIPP Solutions Limited are not authorised to give advice

For more detailed information on investments, please press here

Emerging Benefits

HM Revenue & Customs rules allow pension benefits to be taken at any age between 50 and 75.

It is not necessary to stop working to take benefits, and in some circumstances benefits can be taken earlier than 50 (i.e. if the member is seriously ill). The benefits which can be taken on retirement are:

• In most cases, up to 25% of the fund as tax free cash,
• A pension paid direct from the fund through income withdrawals (often called income drawdown),
• A pension secured by an annuity contract with an insurance company, paid at regular intervals,
• A spouse or dependants pension.
  

Income Withdrawal (or ‘income drawdown’)

A member may draw an income direct from their fund until age75 (as what is called an ‘Unsecured Pension’). The advantages this are:

• On death before 75, the capital remaining within the SIPP can be paid out as a lump sum (to anyone), subject to a 35% tax charge, or be used to provide any spouse or dependant with a pension benefit. These benefits will generally fall outside of the member’s estate for Inheritance Tax purposes.
• The ability to draw a flexible retirement income while retaining control of the capital is one of the major attractions of a SIPP,
• The member retains complete flexibility to alter the investments throughout,
• The member may choose the amount of income they wish to receive each year, provided it is within a limit set down by tables produced by the Government Actuary’s Department; this limit is reviewed every five years (up until age 75).
• The member can draw no income if they wish.
• The member can choose to take benefits at any time between ages 50 and 75,
• The members can choose how much of the pension they want to vest (take benefits from) - benefits can be taken in tranches according to the member’s requirements without restrictions; this is called Phased Retirement.

On each occasion that a part of the benefits are vested, up to 25% of the fund involved will be available as a tax-free lump sum. The balance may then be used to purchase an annuity or it may be retained in investments and used for income drawdown.

Contributions can continue to be made into the remaining segments that have not been vested.

From 6 April 2006 onwards, it is possible for a member to continue taking income drawdown direct from their fund after age 75, subject to a lower limit and annual reviews and a requirement to draw a minimum income. There are however very strict rules on how any remaining SIPP funds can be distributed in the event of your death after age 75.

If the member is survived by a spouse or dependant, then those remaining funds must be used to provide them with a pension benefit. If there is no surviving spouse / dependant the remaining funds must be paid to charity (which you can nominate). The tax consequences of not doing this are severe. More information click here