A few years ago SIPPS were the domain of the more experienced or sophisticated investor. They were seen as especially suitable to the self employed, company directors and partners in law and accountancy firms. But they are no longer the domain of the active investor. With the right advice – anyone can benefit from a SIPP. SIPPS were launched in 1989 by Nigel Lawson, the then Chancellor of the Exchequer. They offer investors the option of making their own investment decisions. Moreover, they also offer a wider investment scope than traditional pension funds. Self-invested schemes have however been around for over 30 years - previously in the form of Small Self Administered Schemes (SSAS). They were the route to huge potential tax savings for family-owned businesses and small limited companies where the shares were owned mainly or wholly by the working directors. There was a surge in interest in SIPPS when it was announced that investors would be allowed to invest in residential property through a SIPP. Although this option was snatched away in the April 2006 budget the interest in SIPPS has not waned. And with good reason. Why consider a SIPP? Everyone’s motivations for their investment choices differ but those who decide on a Self-invested Personal Pension tend to do so for one or a combination of these reasons: 1. Investment Flexibility and Control SIPPS beat traditional pensions hands down in terms of flexibility, diversification potential and sheer investment choice. They are not restricted to the limited fund range offered within an ordinary personal pension or stakeholder pension. SIPP investors can choose from and switch between thousands of investments from across the market, across a full range of:
A Self-invested Personal Pension leaves you fully in control and free to choose from the best investment opportunities available. The choice is important because it allows you the best of both worlds; the pick of the top investments all under the same roof. A SIPP is a pension for the whole of your working life. You simply switch investments when your investment ideas or circumstances change. With a SIPP, you make the decisions. You take control over pension savings. If you are not on top of your pension, you can never be sure that it is working as hard for you as it might. 2. Sheltering Commercial Property One of the reasons that SIPPS are especially popular with professional partnerships (accountants and solicitors) and business owners is that they allow the investor to use their pension fund to buy or put down a deposit on commercial premises. The property is owned by the pension fund and therefore any growth in its value is free of income and capital gains tax. In addition, the rent paid by the partnership or company to the pension fund can be offset against company profits. 3. Access to your Pension Pot An added element of flexibility offered by SIPPS is the ability to draw down income from your pension fund and phase your retirement. Income drawdown With a SIPP you can continue to make investments whilst also drawing an income each year from the fund. Income drawdown lets you keep your pension invested, and defer buying an annuity, while still being able to take tax-free cash. You will still have to buy an annuity once you reach 75. Because your fund is still invested, and therefore still subject to ups and downs, and because income withdrawals and charges will be a drain on the fund, income drawdown is usually recommended only for those with large funds (over £100,000) or other sources of income. Phased Retirement You don’t have to convert your pension fund into an annuity or income drawdown in one go. Instead you can split it into segments and convert them gradually, receiving a series of tax-free cash payments and an increasing income, until the fund is fully converted. You must have converted all of the fund into annuities by age 75. This age will hopefully be raised eventually. Finding the Right Pension There are around 50 SIPP providers in the UK although not all offer options to invest in commercial property. SIPPS are not for everyone – indeed if your pension fund is valued at less than £100,000 it is unlikely that the fees will be competitive compared with your existing pension. But for many, with larger pension pots, careful consideration should be given to a self-invested option with the significant flexibility and tax advantages presented. It is important to take advice from a financial adviser who is experienced in this specialist area. By using an independent financial adviser you can also be sure that you are going to have access to the full range of investment products in the market place. Anyone with a pension fund of over £100,000 should look seriously at whether they are getting the best return from having all their pension eggs in one basket. With the right advice anyone can benefit from the potential for increased returns.
Nigel Foster specialises in advising clients on their Self-invested Pension Schemes (SIPPS). He has advised numerous clients on such schemes and over one third of his current clients have a SIPP rather than a regular pension.
Contact Daly Harvey Morfitt now to discuss your financial requirements. Call on 01789 299655. Notes on using this fact sheet: This fact sheet is published solely to provide information and it does not constitute advice or a personal recommendation. Always take detailed financial advice from a suitably qualified individual before making important financial decisions.
