Self Invested Personal Pension (SIPP)
As a pension planning tool, a SIPP offers choice, control and flexibility in investing pension assets. It also offers greater choices around income provision in retirement, now that there is no longer any compulsion to buy an annuity at retirement. Consequently, it allows those planning for retirement to be more involved in their pension investment choices.
What are SIPP's?
SIPP stands for "Self Invested Personal Pension". It can be described as a 'do-it-yourself' form of pension that allows you to make a variety of different investments into a personal pension pot. SIPP's offer a wide range of investment options including conventional insured pension funds, individual commercial property transactions and discretionary and non-discretionary fund management. In plain English a SIPP is akin to a legal and administrative 'wrapper' for a number of diverse pension planning investments. SIPP's may not suit everybody and you should take advice before embarking on a SIPP investment, but they can be useful for a number of situations. Care must be taken to create a suitable investment strategy as you will be contracting to a pension scheme that is more complex than say, a standard personal pension plan, but has the potential to be more flexible and bring benefits not available in other plans.Is a SIPP for me?
The major advantage of a SIPP is that it offers greater flexibility and control, increased tax benefits and possibly lower costs than many traditional pension plans (individual assessment of your situation will be required here to confirm costing comparisons). If for example you have a number of insured Personal Pensions gained from previous employments, a SIPP can provide a useful vehicle to pull these all together making them easier to administer, manage and add to. Recent changes in legislation mean that SIPP's are no longer solely directed at those on a higher income and can be managed alongside a traditional pension scheme such as a current or previous employers scheme; however you should take advice and make careful comparison with other pension savings options before choosing to transfer to a SIPP, particularly if the value of your combined pension pots is relatively small.A SIPP may be particularly appropriate if you are self-employed or are a Company Director/business owner, as it can offer the possibility of investing in commercial property amongst other investments. Business owners/Directors can also form Group Syndicated SIPP’s to enable their pension provision, and these can also offer opportunities for investment in business assets.
Additionally SIPP's will also be of benefit if you are looking for factors such as increased freedom to invest in a wider range of investment options, day to day control over your investment including the ability to buy/sell shares etc., more flexibility as to when you start to draw your pension and how you choose to take this income and finally a far greater choice of pension benefits for your dependants or spouse when you die.
At retirement, a 25% income tax free lump sum can be withdrawn with the remainder available to buy an annuity or if you are able to live on a reduced income, used for Income Drawdown (technically called Unsecured Income). Income drawn down is generally only suitable if you have a substantial pension pot. Any of the funds that you don't use to provide benefits continue to be invested, though it should be noted this may provide uncertainty for future income as the value of investments may go down as well as up.
Income Drawdown is a specialist area that requires specialist technical help and advice.How much can I invest in a SIPP?
Payments into your SIPP can be made by you as well as another person on your behalf, including your spouse, parent or grandparents. For tax purposes these payments are treated as personal contributions.Payments can be made into your SIPP until the age of 75 and from 6 April 2011 you can contribute up to £50,000 a year to your SIPP and receive tax benefits and possibly more by using carry forward contribution limits. (You can invest more than this annually, however there will be no tax advantages applied to amounts over £50,000.) Pension rules for investors into SIPP's also allow for the transfer in of Protected Rights funds. If you are unemployed or have no taxable income then your spouse or parent can contribute into a SIPP on your behalf up to defined limits, and this payment could attract tax relief at the basic rate. An employer can also make contributions to your SIPP.
You can also decide how you invest and you have a choice of when you want to stop and start your payments and whether you want to make regular contributions or lump sum payments.Taking an income from a SIPP
Unlike a traditional pension where you pay all or part of your fund to an insurance company to buy an annuity, a SIPP offers far more flexibility in how you can draw out an income. With a SIPP you are able to take an income from the age of 55 provided you have sufficient funds in your pension pot, and you will also have the facility to draw an initial 25% as a tax free lump sum.Most people are likely to use the rest of the funds to buy an annuity, however, it is also possible to continue to draw down an income from the pension fund, and this is known as an Alternative Secured Income. Those who can afford to live on a reduced income may also be able to avoid purchasing an annuity.
These are complex areas and help and advice is required here before making a decision.Purchasing Commercial Property Units
Using your SIPP to buy individual commercial property units is extremely popular with business owners and partnerships, both of which can use their pension fund to buy premises for their company/firm. Using a larger pension fund in this way allows for several tax benefits, including:Claiming the expense of the property as a tax deduction meaning that the SIPP will pay no tax on the rental income it receives, and no capital gains tax at the point of sale. Rental income can be paid directly into the SIPP allowing the fund to grow over time, and can potentially be tax deductable to the business making the payments.
To aid this type of transaction, a SIPP may borrow money from a lender to assist the purchase up to a maximum value of 50% of the underlying pension fund - although it should be noted that lenders may offer a lesser maximum loan figure.
The proceeds of a SIPP on death are free of Inheritance Tax (IHT); therefore if a SIPP was used to buy commercial property then this may help to protect business assets. However, it should be taken into consideration that if the business were to run into serious financial problems then both the owner's source of income and the property could be lost.
Due to the complexities in this sort of investment, and the relative risks involved, investors should seek expert independent advice before proceeding.
The Caledonia Asset Management Ltd Sponsored SIPP
Planning & Managing Your Future in Partnership.
Many SIPP's on the market are somewhat constrained by individual provider requirements, which ultimately restricts the full administrative potential of the product.To take one example, many do not allow transfers in from other pension arrangements unless they are cashed in and bought back, whereas the Caledonia Asset Management Sponsored SIPP allows this, saving on administrative and management costs, and retaining the integrity of investments that may be considered valuable but which are currently invested outwith the SIPP.
Another example is the ability to include individual commercial property units. Caledonia Asset Management Ltd has considerable experience in project managing such SIPP purchases, both on an individual and group syndicated basis, and consequently our sponsored SIPP is specifically designed to offer one of the most flexible and cost effective SIPP property purchase propositions on the market.
Other features of our sponsored SIPP are:
The Plan can accept transfers in, regular contributions and Protected Rights contributions. Transfers can come from Occupational Schemes, including Executive Personal Pensions and Small Self Administered Schemes, Insured Personal Pension Plans, Retirement Annuity Contracts, Free Standing Additional Voluntary Contribution Plans, Buy Out contracts (Section 32 Plans) and of course other Sipp's.
The Sipp can also accept pension credit rights from a divorce pension sharing settlement.
A broad range of investment opportunities can include; Listed Shares, Unlisted Shares, Gold, Unit Trusts, Commercial Property Units, Deposit Accounts, Trustee Investment Bonds, Land, Oeic's (including Hedge Funds), Investment Trusts and Futures and Options. You can also invest in Stocks and Shares on the Stockmarket or Aim listings, via a Stockbroking Nominee Account.
It is not possible to invest in residential property, moveable assets such as plant and machinery, or high value items such as Art, wines or cars.Contact us now: Email: info@calam.co.uk Tel: 0131 225 4488
Risk warning: The value of your investments may go down as well as up and you may receive less than you initially invested.
