Continuing the theme of last month’s issue, retirement planning, I wondered if, like me, you would like to have more control over your own pension fund and be able to either make investment decisions yourself or have the option of our professional help. If that is the case then a Self-Invested Personal Pension (SIPP) could be the retirement planning solution for you.
So what is a SIPP? A SIPP is a personal pension wrapper that offers individuals greater freedom of choice than conventional private personal pensions. However, they are more complex than conventional products and it is essential you seek expert professional advice from someone like us before you decide it is the right thing for you.
SIPPs allow investors to choose their own investments or appoint a financial adviser to look after the portfolio on their behalf. Individuals have to appoint a trustee to oversee the operation of the SIPP but, having done that, the individual can effectively run the pension fund on his or her own.
Provided you are eligible to make contributions, you can typically pay into your SIPP as much or as little as you choose. This can be a combination of personal and/or employer contributions and can be made on a one-off or regular basis. Although there is no limit to the level of contribution, there is a limit on the level of tax relief available. The limit is known as the annual allowance. The current amount of your pension savings that benefits from tax relief is currently limited to £50,000. From the tax year 2014/15 onwards the annual allowance will reduce to £40,000. Income tax relief is not available for personal contributions which exceed earned income, although regardless of earnings, most people can contribute £3,600 per annum into a SIPP or other pension arrangement and still receive basic rate tax relief at source. An employer can receive relief against corporation tax for contributions providing they can be justified as wholly and exclusively for the purpose of their trade.
If you already hold a range of different pension benefits, either from previous jobs or your own personal pensions, a SIPP could be one way to consolidate these into one portfolio. Lyndhurst can advise if we recommend whether you should consolidate your existing arrangements.
You can typically choose from thousands of funds run by top managers as well as pick individual shares, bonds, gilts, unit trusts, investment trusts, exchange traded funds, cash and commercial property (but not private property). Also, you have more control over moving your money to another investment institution, rather than being tied if a fund under-performs. Once invested in your pension, the funds grow free of UK capital gains tax and income tax (tax deducted from dividends cannot be reclaimed).
While a SIPP may not be the solution for everyone we can explain in plain English how a SIPP could help you plan for your retirement. To discuss your requirements contact us today on 0208 4475592 for further information.
Lyndhurst Financial Management Limited.
Authorised and Regulated by the Financial Conduct Authority.