A Self-Invested Personal Pension, or SIPP, is a personal pension wrapper that offers savers many attractive features such as increased control flexibility of their pension fund, and its investments.
SIPPS were originally aimed at wealthier individuals, for example, those with pension funds over £200,000. However, increasing competition and changes in legislation over the years has brought charges down and made them more accessible to clients with lower fund values.
SIPP pensions have several advantages over more basic personal pension plans.
One of the significant benefits is the greater amount of control and flexibility they offer. Savers are given the option of choosing and managing their own investments with the help of an independent financial adviser. Unlike conventional pension schemes, SIPPs offer an extensive range of investment options (many types of financial assets can be invested in a SIPP).
They also provide investors with tax-efficient savings for when they retire and offer a greater choice of pension benefits for their dependents or spouse when they die.SIPPs have the same tax benefits as a standard personal pension, as long as the investment is on the approved list issued by the HMRC. As with any other personal pension, a SIPP is subject to the same contribution limits, but it does allow you to defer buying an annuity upon retirement. It also allows you to drawdown an annual income, whilst at the same time retaining an investment fund.
Another significant advantage of aSIPP is that it allows people to transfer any existing pension schemes and investments they may have into one pension fund. This is why a SIPP is sometimes referred to as a pension wrap or wrapper. By consolidating their retirement savings in one place, savers can benefit from easier management of their investment portfolio and reduce the charges associated with their other pension schemes or investments. There are also companies who provide improved terms for more substantial pension fund investments.
Before any transfers are carried out, it is important for people to check whether there are any valuable benefits in their existing pension schemes that would be lost on transfer. You must always take the costs of transferring into consideration. SIPP costsWith SIPP pensions, there are two main charges involved – a set-up fee and an annual administration fee.While SIPP costs have come down dramatically since their launch there is still quite a difference between the highest and lowest charged, and it’s a minefield to try and find the best value provider. Cheapest is not always the best and you will have to do your research or speak to a professional adviser. Customers who set up a SIPP with a limited range of options such as shares, funds and cash, may find that no set-up fee is required, only a modest annual fee.Other possible charges include:
Deciding on whether a SIPP is a more suitable option than other forms of personal pensions can be tricky. It’s always a good idea to talk to a pension adviser first as they will analyse your circumstances and take into account your investment risk profile. But in short,SIPPs are generally more suitable for investors who:
A SIPP may also be a suitable choice for people who are self-employed or those who do not have access to a pension scheme through their current employer.
Unlike other personal pension schemes, a SIPP can hold a wide range of investments, which grow virtually tax free. However, a SIPP with a wider level of investment choices may come with higher charges and therefore it is important to check the charging structure of a SIPP.
Using a larger pension fund in this way also offers several attractive tax benefits, such as: The costs of buying and managing a property in a SIPP need to be taken into account, as these can be quite high, and there are also legal and valuation fees to pay. It should also be taken into consideration that if the business were to fold, the owner would not only lose their source of income, but the pension fund would also lose its tenant, leading to the property being offloaded as a SIPP investment.One of the main attractions of a SIPPis that it can be used to invest and develop commercial property, such as offices and shops. A SIPP can borrow up to half the fund value it already holds to purchase commercial property. The rent from the property can be used to cover the mortgage repayments or, if there is no mortgage to be paid, it can pay into the SIPP fund and be used for other investments. Investing in commercial property is a particularly popular investment option for small businesses owners, as it allows them to purchase premises for their company through their pension funds.
A SIPP cannot be used to invest directly in residential property, although investing in a commercial property with a residential element such as a caretaker or gardener’s flat may be permitted provided it is rented to an unconnected person.
You can also request contact details from the Pension Tracing Service by phone or by post.
The Pension Tracing Service
Telephone: 0800 1223 170
From outside the UK: +44 (0) 1782 389134
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