Self Invested Personal Pension – Take Investment Control of Your Pension

Self-invested personal pensions (SIPPs) are personal pensions that allow you to decide where your contributions are invested, instead of leaving a pension company to make the decisions. You can contribute to a SIPP if you are below age 75, even if you are accruing pension benefits elsewhere, subject to the annual allowance.

Each year you can contribute up to the annual allowance (£235,000 in 2008/09, £245,000 in 2009/10, and £255,000 in 2010/11 to 2015/16). You are able to obtain tax relief on up to100% of your Relevant UK Earnings when paying into any pension including a SIPP.

Pension Transfer to a SIPP

You can transfer your existing pensions to a SIPP but you need to beware of transfer penalties, and ensure that you do not give up valuable benefits such as guaranteed annuity rates, which could give you a much higher pension than would be available if you were to switch. SIPPs also often have higher charges than other types of personal pension. If you are considering switching from an occupational scheme, you should seek independent financial advice as you may be at risk of giving up some valuable benefits such as spouse’s and dependants’ pensions as well as ill health and early retirement benefits.

How We Can Help

We offer an independent, no obligation service. Our specialist pension advisers will gather all the data about your pension; charges, performance, projected benefits, and any other relevant information. This will be analysed along with your personal situation and views to decide if a SIPP is right for you. If it is, we will recommend a suitable SIPP provider. If we arrange a SIPP for you, we will be paid by a fee agreed with you, or commission from the SIPP provider, or a combination of both. Moreover, we offer a long-term relationship with you to aim to keep your pension on track.

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There is a wide range of SIPP providers. These will include some insurance companies that are familiar household names. There are also specialists SIPP providers that will accept property and property-related schemes, and other non-mainstream investments.

SIPPs can invest in a wide range of assets; the main ones are listed below;

• Deposit accounts (in any currency providing they are with a UK deposit taker)
• Government securities and other fixed interest stocks
• Unit trusts
• Open ended investment companies (Oeics)
• Investment trusts
• Insurance funds
• UK stocks and shares including shares listed on the Alternative Investment Market (AIM)
• Overseas stocks and shares quoted on a Recognised Stock Exchange
• Unquoted shares
• Commercial property
• Ground rents in respect of commercial property
• Traded endowment policies
• Permanent Interest Bearing Shares
• Warrants
• Futures and Options

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Investing in Property Using a SIPP

Your SIPP can invest in and develop commercial property, and can borrow up to 50% of the fund’s net value to do so. Because of their cost and complexity SIPPs are not suitable for everyone. Generally they are suitable for those who have a minimum of £50,000 in pension funds who are financially sophisticated and have a good understanding of investments and investment risk. SIPPs may also suitable for those to invest in commercial property or other investments that are not available to normal personal pensions.

Example - if your SIPP is worth £100,000 then you could potentially borrow £50,000. The rental income from the property can be used to repay the mortgage. This makes it very attractive to business owners who would prefer to pay rent to their own SIPPs. Buying your own business premises within a SIPP can also have several tax advantages. The rental income paid into your SIPP is free of tax because it is a tax-deductible expense. There will be no capital gains tax to pay on the property when it is sold within the pension fund and if you die before age 75 and before you start drawing your pension, your beneficiaries can receive the proceeds of the sale of the property free of inheritance tax.

Please note that the value of property and income from property can go down as well as up and you may not get back the amount originally invested. Property valuation is a matter of judgement by an independent valuer therefore it is generally a matter of opinion rather than fact. As property is a specialist sector it can be volatile in adverse market conditions, there could also be delays in realising the investment.

Your SIPP could buy

• Offices
• Industrial Units
• Shops
• Commercial Property with a residential element (e.g. caretakers flat)
• Buy-to-let hotel rooms and other similar property-related schemes abroad such as ski chalets although not all SIPP providers will accept these schemes.

Although a SIPP is not permitted to invest directly in residential property, it can do so via property syndicate or collective fund.

SIPP charges are dependent upon what the SIPP invests in. they vary considerably from provider to provider, and are generally more expensive than normal personal pensions.

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Retirement and your SIPP

As with any other pension, you will have all the usual options of tax free cash and;

• Lifetime Annuity
• Investment-Linked Annuity
• Income Withdrawal
• Short-Term Annuities
• Hybrid Plans
• Phased Retirement

However, many SIPP holders prefer to take an income direct from their pension fund, using Income Withdrawal, sometimes know as Drawdown. This gives them greater control over how and when they take income from their fund, and is especially useful if the SIPP owns commercial property that it does not want to sell.

Suitability of SIPPs

One of the main differences between a SIPP and a personal pension is the wider range of investment options SIPPs offer. If you simply want to be able to spread your pension fund among a variety of different investment groups rather than being tied to the funds offered by your pension company, a cheaper solution would be a low-cost personal pension that offers a wide choice of external fund managers.

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