This can be a brief review of the primary rules of Self Invested Personal Pension and therefore won't cover every nuance or aim to apply to each individual. The information contained does not constitute advice and any questions arising ought to be discussed having a suitably qualified Financial Adviser. The thresholds and allowances derive from information and rules presently in force (Sept 2012).
Self Invested Personal Pensions (SIPP's) are, as stated, a kind of Personal Pension available to UK residents. Generally, a SIPP is used by people who are comfortable making their very own investment decisions. Unlike a conventional Personal Pension it enables you to buy wide range of different investments, including funds, shares, cash, alternatives and certain types of property.
Benefits could be accessed from age 55 and a tax-free lump sum payment of 25% of the pensions value can be obtained with the remainder providing a taxable income. Benefits from a pension should be taken at age 75.What is a Sipp Pension
In most cases, annual contributions can match annual earned income. A £50,000 annual limit (2012/13) along with a £1.5 million lifetime allowance also apply. On occasion, these limits can be impacted by other factors. Carry forward (unused annual allowance from previous years) may be used to contribute a lot more than the £50,000 annual allowance. Each new contribution made will apply to the annual allowance within the tax year it is made (6th Apr - 5th Apr).
Tax relief can be obtained to every eligible person. 20% of contributions are paid through the Government as easy tax relief. Higher rate taxpayers can claim an additional 20%back directly via their local tax office and additional rate taxpayers can claim up to 30% (according to 2012-13 guidelines).
Non-earners or those earning under £3,600 annually can contribute up to £3,600 gross per year (£2,880 net) each tax year and receive tax relief at 20%.
The potential advantages to having a SIPP arrangement could be:
Control: The greater control and flexibility to alter contributions and investment direction
Choice: Diversify into your choice of investment and at levels you require.
Admin: All of your pension funds and investments can be held within one place.
Transferring existing pension plans right into a SIPP is available. Lots of people have preserved pensions which have value with numerous providers. This can be from previous Employer Schemes, Final Salary Schemes, Stakeholder Pensions and SERPS. Many people think that the transfer process from personal pensions into a SIPP can be a nightmare however in effect it can be easy. That is not to express it's the right move to make but when this will make it the process is efficient.
In the event you decide to transfer pensions, make sure that you understand how the transfer will be made. The vast majority of cases will transfer into the SIPP as Cash. Whilst you are deciding where the cash should be invested you'll be beyond a good investment and for that reason to not get returns. If seeking investment, keep in mind that you can choose to invest across different investments and not simply just one fund. This enables for diversification.