A Self-Invested Personal Pension (SIPP) is a tax-privileged savings plan with the purpose of building a capital sum to provide an income in later life.
The product is considered as an option for people who strive for more personal control over their pension plan’s investments. It permits the client, along with the assistance of their appointed financial advisor, to build a bespoke pension investment strategy in an open architecture environment.
Eligibility for a UK SIPP
A SIPP is eligible to most people, regardless of where the member is resident. It can accept transfers of pension funds from other pension schemes and personal and employer contributions.
The trustee only accept business where a regulated financial adviser is in place and offer SIPPs to individual’s funds from around the world with a UK pension.
The funding of a SIPP
A SIPP can be funded by the transfer of other pension schemes, contributing cash or by contributing acceptable assets.
All Regency Wealth Management’s SIPPs are Registered Pension Schemes with HMRC. Regency Wealth Management is also able to claim basic rate tax relief on behalf of the member in respect of relevant UK tax relieved earnings when you contribute cash or assets within prescribed limits.
The investment choices
Regency Wealth Management’s SIPPs are Self Invested, so investment instructions are decided by the member or their appointed financial adviser.
We will note that certain investments may require a higher level of investor sophistication due to the increased risk they carry and further declarations may be required
After the age of 55, a member is entitled to use the pension fund to provide benefits.
A member is allowed to withdraw up to 25% of the pension fund, subject to the Lifetime Allowance, as a tax-free Pension Commencement Lump Sum, and then have the residual fund value to provide an income.
The traditional route with the residual fund is to buy an annuity. A SIPP provides income through Income Drawdown, which allows your investment to remain invested. You choose how much or little income you wish to withdraw each year (within prescribed limits) and to leave any pension pot which has not been extinguished, as a lump sum to nominated beneficiaries, after the deduction of the relevant taxes on special death lump sums, which currently stand at 55%, or as a Dependent’s Pension, transferred onto the dependent, or into their own pension fund.
Things you should note:
- Income Drawdown may deplete your pension funds quickly and should be reviewed at least on an annual basis with your financial adviser
- If you take your Pension Commencement Lump Sum or draw down your pension fund after 6th April 2011, you will be subject to a 3 yearly income limit review. If you drew down your pension fund before this date, you will become subject the 3 yearly reviews after your next pension review
- The tax rules and legislation is, of course, liable to change and this information is based on our current understanding of the law and HM Revenue & Customs practices.
Risks & responsibilities
Before this product is considered as an option for investment, the client must seek financial advice in relation to whether the product is appropriate for their needs and whether it is appropriate to transfer other pension benefits.
This advice is especially important when transferring from a Defined Benefit plan, where fixed benefits will be forfeited at the point of transfer.