A SIPP (Self Invested Personal Pension) is an account which allows you to manage your own Pension or to appoint an Investment Manager such as us to manage your Pension on your behalf. The benefits of this compared to being in scheme offered by a life company can be enormous.
You may already have a Workplace pension. In that case you can either set up a SIPP independently of your other Pension and begin saving into it separately, or you can amalgamate your current and past workplace pensions into a SIPP so that they are all in one place. This will very likely reduce the overall running costs and thus improve your future returns and make the paperwork of saving for retirement much easier!
Capital Financial Markets Ltd. do not Advise you on what Pension set up is right for you as every case is very specific and we are not specialists in this. We specialise in managing or advising on the Investments held within the SIPP. However we can recommend one of our Financial Planning Partners to advise you on the correct pension set up. If you have read about SIPPs and have decided of your own accord to open a SIPP you can request information and ask us to manage those Investments for you.
If you are in any doubt as to whether you should transfer a Pension from your current provider into a SIPP you should consult a Financial Advisor or we can pass your details to a suitable firm request info
The range of Investments which can be held within a SIPP
If you have a Pension managed by one of the large life companies, the chances are your assets are invested in their Funds only. SIPPs are incredibly flexible and allow investment in most listed securities (Shares & Bonds) and often un-listed stocks and Property (Investment & Commercial Property) and across the range of Funds and Investment Trusts. You can hold a selection of these securities and funds from any provider not just the company that runs your Pension. SIPPs are run purely as a Pension account therefore you can choose what shares, bonds, funds and other investments your pension holds.
Instead of buying an annuity at 75 you can keep the portfolio your SIPP is invested in and either manage the portfolio in the way you wish or get us to do it for you. With traditional Pensions you are forced to buy an annuity at 75. These often offer low returns and mean that after 75 you can no longer grow your pension pot. If for example you might not need the cash from your SIPP, the portfolio can still be managed for capital growth post 75 or if you need Income you can decide, or ask us for advice, as to what are the best type of Investments for the portfolio.
SIPPs can have a much lower running cost than Pensions managed in a more traditional manner. For example the annual charge of our SIPP is £95 per annum for the administration. In addition you pay an annual management fee to us to have the fund managed for you or if your account is execution only then a commission charge for buying and selling the shares.
At Capital Financial Markets we can invest in the full range of available investments. Shares, Bonds, Investment Trusts and so on. If you were having your account managed by a provider who predominantly use Unit Trusts to Invest your cash and charges you for Advice on the set up, then you would be paying a management fee plus the charges taken by the Unit Trust Managers. The bottom line is that with our SIPP including management/advice the annual management annual fee will come to around 1% per annum. If you are using a provider which uses Unit Trusts and gives you advice then you may be paying around 2.25%-3% of the funds value per annum. A considerable saving!
Tax Advantage of a SIPP
An additional rate tax payer can claim 20% basic tax relief (paid directly by the government) and a further 25% via your tax return. So for each £5500 of post tax income you pay into your SIPP you are actually paying in £10,000. For the current tax year 2013/14 the level of contributions on which personal tax relief will be granted is up to 100% of UK earnings (from employment or self employment) subject to an overall limit of £50,000.
Additional tax benefits
- No capital gains tax or further income tax
Investments in a pension can grow free of UK capital gains tax and further income tax.
- Up to 25% tax-free lump sum when you retire
Anytime from age 55, you can normally take up to 25% of your SIPP as a tax-free lump sum, and a taxable income from the remainder if you wish.
- No inheritance tax if you die before retiring
If you die before taking benefits from your pension, and before reaching age 75, the fund will normally be passed to your spouse or other elected beneficiary free of inheritance tax.