SIPPs

A SIPP, or self invested personal pension, is an investment plan that enables tax efficient savings for your retirement. SIPPs are a niche product and may not be suitable for the majority of individuals.

Contributions

A variety of methods

Regular payments can be made into SIPPs, as can single payments. You can also transfer one or more pension arrangements into it. If you are an employee, your employer can also contribute to the plan.

Investments

A wider range

Unlike traditional pension plans SIPPs provide the widest range of investment instruments available and offer the ability to borrow money for investment. For example, you can invest in the likes of OEICs, stocks and shares, and direct investment in commercial property with a SIPP.

Typically, SIPPs are for those wishing to take a more active role in their retirement planning and are really only for those with larger pension funds and other substantial assets.To utilise the wider investment opportunities offered by a SIPP you normally need to be prepared to take a greater degree of risk.

Protected rights

N I rebates

From the 1st October, 2008, any protected rights monies you have that may be currently invested elsewhere can now be brought into a SIPP for potentially more effective growth opportunities. Protected rights refers to national insurance rebates provided when contracting out of the State Second Pension (S2P). (An option is a protected rights annuity).

Your options

Drawing retirement benefits

A SIPP allows you to take your retirement benefits in a number of different ways. These include drawing an income from the fund you have built up. This option is known as income drawdown (sometimes called pension fund withdrawal). The benefits can be taken in stages leaving the remainder of the fund invested. This gives you the opportunity to take advantage of continuing investment performance and avoids you having to lock into one particular annuity rate. However, it should be borne in mind that should continuing investment performance be negative you could be better off locking into an annuity rate.

You do have options for taking your benefits

■ You could utilise income drawdown, and, in addition, tax-free cash lump sum(s).
■ You could take an annuity or annuities, and, in addition, tax-free cash lump sum(s).
■ You could take a mixture of annuities, along with income drawdown and tax-free cash lump sum(s).

Under current legislation you can now continue to take income drawdown beyond age 75. This option goes by the name of alternatively secured pension (ASP). There are rules that apply in respect of how much income drawdown you can take and these change when you reach age 75.

Issues to consider

Some thoughts

If you think a SIPP might be right for you there are a number of things you’ll need to think about:

■ How much you want to pay
■ How you want to invest your money
■ What to do with any existing pension plans you have

Who can have a SIPP

Most are eligible, but a SIPP will only suit a few

As is the case with personal pensions and stakeholder pensions most people in the UK are eligible to set up a SIPP contract. However, because the operating costs are typically a lot higher for SIPPs, they are generally only likely to be suitable for individuals with larger pension funds and for those who also wish to make use of the wider investment opportunities available.

You can have a SIPP regardless of whether you are

■ Self-employed
■ Employed
■ Not currently working

You can also have a SIPP running alongside membership of an employer’s pension scheme.

You may wish to consider a SIPP if

■ You wish to utilise the full range of investment instruments
■ You wish to be actively involved in the investment decisions of your pension fund
■ You want a greater choice over the pension benefits available to your dependant(s) when you die.
■ You want flexibility over how and when you take pension income, using income drawdown.

Important footnote

SIPPs are not suitable for everyone and specialist advice should be taken if considering such a contract.