Self Invested Personal Pensions are a popular choice for Retirement Planning

Self Invested Personal Pensions are a popular choice for Retirement Planning

Self invested personal pensions (Sipp’s), were introduced in 1999 to the UK. Basically, it is a Tax Wrapper in the same way as any other personal pension. Tax Relief is applied to contributions and is granted at your highest rate of taxation. If you are a basic rate taxpayer you will receive 20 per cent tax relief. An £80 contribution will be grossed up to £100 invested. Also, lifetime contribution allowances are the same as a standard Personal Pensions. However, the main difference is the owner of the SIPP can make their own decisions as to where the money is invested (within certain guidelines).

At present, there are over 600,000 SIPPS in use in the UK. Anyone can have one (even Children receive Tax Relief). A SIPP offers flexibility, transparency (you know where your money is invested) and access to direct/alternative investments unavailable to a standard personal pension (and therefore not likely to be invested in the same old, under performing funds).

The shocking statistic is that 77% of Britons are retiring with their pensions providing an income of £2,000 per year or less! Making the most of your existing or preserved pensions has therefore never been so important.

So Why Self Invested Personal Pensions?

There are MILLIONS of Preserved, Frozen or Under Performing Personal Pensions in the UK. Within a SIPP, it may be possible to give the pension an opportunity to be more active, tailored to choice in the pursuit of investment returns. You can take control of your investments.

SIPP’s can also be a fantastic option pre-retirement as this type of arrangement can add flexibility as to how income is received in retirement. Though the maximum tax free lump sum is still 25%, the remaining funds can be reinvested to suit requirements. Whereas, with a standard personal pension, any residual fund (after taking the tax free cash) would have to purchase an annuity at a set rate for the rest of your retirement. The Sipp would allow benefits to be taken at age 55 and would offer a pension draw-down facility where the retiree can withdraw income at a level they choose, again subject to allowable levels.

Another major consideration for considering a SIPP is to provide a legacy. With a standard personal pension, in retirement should you die it is likely that your children would not receive any of your pension and your spouse may receive a a percentage of your pension if any at all. With a SIPP the remaining pension funds are paid to your beneficiaries, though subject to taxation. Who would you prefer to benefit, an Insurance Company or your family?

The investments Silvinvest highlight, are not only available for Pension Transfers but also direct cash investment. However, Preserved Pensions are not new money. Preserved Pensions have already accumulated funds and have a value.

Types of Preserved Pensions

Previous Employer Pension Scheme

Previous Personal Pension Scheme

Existing Personal Pension Scheme

SERPS (Contracted Out Personal Pensions/Protected Rights)

Are you considering using an existing pension to invest?

Establish what you have and what you are likely to receive, via a full pension report.

Here at Silvinvest we can put you in touch with Regulated IFA’s who can advise you on your options.

Don’t depend on the State to provide you with a pension safety net. Take control of your retirement planning.

The information contained in this article should not be construed as financial, tax, legal or any other professional advice or service. Please seek a professional opinion from your IFA prior to making any investment decision. The information in this article is for guidance only. While every effort has been made to offer current and accurate information, errors can occur.