A Simple Guide to UK SIPP's

A Simple Guide to UK SIPP's

This is a brief summary of the main rules of Self Invested Personal Pension and therefore will not cover every nuance or seek to apply to each individual. The information contained does not constitute advice and any questions arising should be discussed with a suitably qualified Financial Adviser. The thresholds and allowances are based on information and rules presently in force (Sept 2012).

Self Invested Personal Pensions (SIPP's) are, as stated, a form of Personal Pension available to UK residents. Generally, a SIPP is used by people who are comfortable making their own investment decisions. Unlike a conventional Personal Pension it allows you to invest in a wide range of different investments, including funds, shares, cash, alternatives and certain types of property.

Benefits can be accessed from age 55 and a tax free lump sum of 25% of the pensions value is available with the rest providing a taxable income. Benefits from a pension must be taken at age 75.

In most cases, annual contributions can match annual earned income. A £50,000 annual limit (2012/13) and a £1.5 million lifetime allowance also apply. On occasion, these limits can be affected by other factors. Carry forward (unused annual allowance from previous years) can ibe used to contribute more than the £50,000 annual allowance. Each new contribution made will apply   to the annual allowance within the tax year it is made (6th Apr - 5th Apr).

Tax relief is available to every eligible person. 20% of contributions are paid by the Government as basic tax relief. Higher rate taxpayers can claim a further 20%back directly via their local tax office and additional rate taxpayers can claim up to 30% (based on 2012-13 guidelines).

Non-earners or those earning less than £3,600 a year can contribute up to £3,600 gross per year (£2,880 net) each tax year and receive tax relief at 20%.

The potential advantages to having a SIPP arrangement can be :

Control: The greater control and flexibility to change contributions and investment direction

Choice: Diversify into your choice of investment and at levels you require.

Admin: All of your pension funds and investments can be held within one place.

Transferring existing pension plans into a SIPP is available. Many people have preserved pensions that have value with numerous providers. This can be from previous Employer Schemes, Final Salary Schemes, Stakeholder Pensions and SERPS. Many people think that the transfer process from personal pensions into a SIPP can be a nightmare but in effect it can be easy. That is not to say it is the right thing to do but if it is then the process is efficient.

Should you decide to transfer pensions, ensure that you understand how the transfer will be made. The vast majority of cases will transfer into the SIPP as Cash. Whilst you are deciding where the cash should be invested you will be outside of an investment and therefore not receiving returns. If seeking investment, remember that you can choose to invest across different investments and not just a single fund. This allows for diversification.

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Have you ever considered the potential of an investment creating a Legacy?

Have you ever considered the potential of an investment creating a Legacy? Obviously most people’s understanding of “legacy” is to provide financial security for their heirs. The simple meaning of legacy refers to “the lasting effects an event leaves behind after it’s finished“. An investment legacy could have the potential of benefiting more than the pursuit of profit or the provision of inheritance.

Therefore, would you consider an investment legacy that provides an investment return but also provides for the environment in which present and future generations will live?

Investing in timber can provide a safeguard to our established eco-systems by creating more forests and more trees. Trees help create a healthy atmosphere, reduce the impact of climate change and provide important habitats for communities and wildlife. Creating forestry plantations and tree farms, via investment, can help relieve the pressure on our already depleted old forest stocks of timber and wood.

Importantly, it is also creating a healthy return for your money, providing a financial legacy perhaps for retirement or for other financial goals, such as inheritance.

What it means for the environment is potentially a whole lot more.

Educating a Future Generation.

As the demand for timber grows at an unprecedented rate, so does the illegal logging trade. By investing in sustainable forests you are helping to meet these demands and in turn reduce the destructive need for such illegal wood. Protection of our most vulnerable eco-systems is consistently more important with each passing year. Within many rainforests, illegal logging is the norm and results in the destruction of around one and a half acres of forest every second. As governments begin to realise the benefits of sustainable plantations, this illegal trade will eventually be driven out and communities and industry will be educated in good and effective forest management.

Green Legacies

Should you invest in timber, you might wonder what happens once trees are harvested and your investment reaches maturity. Well you have the option to extend your investment period which will in turn generate more profit or ultimately your trees will be harvested and the investment closed. What happens to the land does differ with every plantation but the usual outcome is that it is re-planted, so the forest is replenished and ready to begin the cycle all over again.

Timber plantations are recognised as contributing to the economy of that country. By planting new tree farms it can protect that countries existing forest status. Many forestry plantations are placed within a forest easement trust which protects them from conversion into other uses. Such trusts may prohibit the landowner from engaging in any activity that could damage the forest whilst encouraging good forestry practices.

This may result in the land continually being used to provide sustainable timber whilst ensuring that existing wildlife habitats are protected and new biodiversity can be established. So not only will your legacy help to protect an area of forest or even rainforest but it will also ensure a regular and sustainable contribution to the local economy.

So just one investment in timber production could leave behind a legacy that in some way benefits many in many different ways.

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