What is a Self Invested Personal Pension?
Who can invest in a SIPP?
What can I invest in?
What tax relief will I receive?
What charges will I have to pay?
Can I transfer existing assets into my SIPP?
Can I transfer my SIPP elsewhere?
When can I retire?
Do I ever have to purchase an annuity with my SIPP?
What are the risks?
How do I open a SIPP?
What is a Self Invested Personal Pension (SIPP)?
A SIPP is an HMRC registered pension scheme with a wide investment remit including investment grade gold bullion.
The investment decisions on how to invest a SIPP are made by the individual or his financial advisers. This gives the individual more control and flexibility than other pension arrangements.
Who can invest in a SIPP?
Virtually anyone in the UK from birth to age 75 who is resident in the UK can contribute to a SIPP. You may not be able to contribute to a SIPP if you are already contributing to an occupational pension.
Traditionally, a SIPP has been the choice of wealthy individuals with substantial pension funds already built up, partly due to the charges incurred through the scheme. It has also been attractive to the self-employed, who are able to take advantage of the option to diversify into a range of different assets. The scheme is now growing in popularity with investors who simply want to make their own investment decisions from a wider range of investments. Before making any decision on transferring to a SIPP, it may be wise to consult an independent adviser about the suitability of the scheme.
What can I invest in?
A SIPP can invest in most things including property, shares and investment grade gold bullion. The majority of investments will not incur any tax charges in terms of income tax and capital gains tax (other than advanced corporation tax payable on UK dividends).
What tax relief will I receive?
The amount you contribute is net of basic rate tax. The tax on this contribution must be reclaimed from the Inland Revenue. If you are a higher rate taxpayer you should reclaim the higher-rate directly from the Inland Revenue.
What charges will I have to pay?
Some people consider the charging structure of a SIPP more transparent than a standard personal pension. There is usually a flat charge for setting up the SIPP and an annual administration fee. Some charges are not related to the size of your pension fund, so the more it grows the smaller the charge appears. With some SIPPs you have to pay an all inclusive fee meaning you are charged for services you may not use, whereas others charge only for each service used. Further charges are related to the investments you choose. For example, you may have to pay an initial charge and an annual management charge if investing in an Investment Trust through the scheme. With other providers you just pay a transaction fee each time you trade a share.
Consulting an independent adviser about investment choices or whether to invest in the scheme will also come with a fee.
Can I transfer existing assets into my SIPP?
You may be able to transfer existing assets that you own into your SIPP at the Trustees discretion.
Can I transfer my SIPP elsewhere?
You can transfer your SIPP at any time. A SIPP from which you are drawing income can only be transferred if the receiving Provider is prepared to accept a SIPP in drawdown.
Can my employer contribute to the scheme?
Yes. Combined contributions are subject to limits set by the Inland Revenue. If you are contributing to an occupational pension scheme you may not be able to invest in a SIPP at the same time.
When can I retire?
You can retire at any age between 50 (from 2010 age 55) and 75.
Do I ever have to purchase an annuity with my SIPP?
New legislation does not require you to purchase an annuity on, before or after reaching the age of 75.
What are the risks?
Talking to a financial adviser before joining any scheme may help you decide whether this type of pension is appropriate for you. The level of risk is also down to the investment choices you make, for example whether you confer with a financial adviser before making investments or choose them yourself.
How do I open a SIPP?
Recognised SIPP providers are listed on our SIPP Providers page. If you are transferring an existing pension fund into a SIPP there can be extensive paperwork involved and you may wish to enlist the help of an independent adviser. As soon as the application forms have been processed you will be able to choose your investments.
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