This is a brief review of the main rules of Self Invested Personal Pension and therefore won't cover every nuance or aim to affect each individual. The information contained does not constitute advice and any questions arising should be discussed having a well qualified Financial Adviser. The thresholds and allowances derive from information and rules presently in effect (Sept 2012).
Self Invested Personal Pensions (SIPP's) are, as stated, a kind of Personal Pension available to UK residents. Generally, a SIPP is used by people who are comfortable making their own investment decisions. Unlike a regular Personal Pension it allows you to buy 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 remainder providing a taxable income. Benefits from a pension must be taken at age 75.What is a Sipp Pension
Generally, annual contributions can match annual earned income. A £50,000 annual limit (2012/13) along with a £1.5 million lifetime allowance also apply. On occasion, these limits could be affected by additional factors. Carry forward (unused annual allowance from previous years) can be used to contribute a lot 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 through the Government as basic tax relief. Higher rate taxpayers can claim an additional 20%back directly via their local tax office and extra rate taxpayers can claim as much as 30% (according to 2012-13 guidelines).
Non-earners or those earning less than £3,600 a year can contribute as much as £3,600 gross each year (£2,880 net) each tax year and receive tax relief at 20%.
The possibility advantages to having a SIPP arrangement could be:
Control: The higher control and flexibility to alter contributions and investment direction
Choice: Diversify into your selection of investment and also at levels you require.
Admin: All your pension funds and investments could be held within one place.
Transferring existing pension plans into a SIPP can be obtained. Many people have preserved pensions that have value with numerous providers. This is often 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 however in effect it can be easy. That isn't to say it is the right move to make but if it is then the operation is efficient.
Should you decide to transfer pensions, make sure that you know how the transfer will be made. Most cases will transfer into the SIPP as Cash. Whilst you are deciding in which the cash should be invested you'll be beyond an investment and for that reason not receiving returns. If seeking investment, remember that you are able to choose to invest across different investments and not simply a single fund. This enables for diversification.