Self Invested Personal Pension
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Self Invested Personal Pension
There are currently two kinds of personal pension schemes available in the UK, one is an insured or conventional Personal Pension and the other is a Self-Invested Personal Pension (SIPP). The ability to choose and manage (to some extent) how the pension contributions are invested is the great attraction of SIPP’s. They may have higher charges than other types of pension and therefore may be more suited towards people who have more experience with investing, however you can either manage your own investments or employ and pay an authorised investment manager to manage the pension fund for you.Whereas pension schemes are all controlled by individual rules, there are currently more options for the pensioner to decide when and how to start their pension than ever before.
The following is a non-comprehensive list of changes however each pensioner should contact their pension administrator to determine exactly what they can or cannot do with their scheme.
Existing options:
- A secured pension for life paid out of the scheme assets (Scheme pension)
- An investment which provides a regular income for life (to buy and annuity)
- Drawing an income directly from the pension fund before the age of 75
- Drawing an income directly from the pension fund from the age of 75
Previously, to draw your company pension, you were required to leave your job. This is no longer the case. You may be able to draw all or some of your pension while still working full or part time for the same employer, depending on your scheme’s rules.
The age at which you can draw your pension is also changing. By April 2010, the minimum age at which you can take your company or personal pension will have increased from 50 to 55 and the minimum age at which you can draw your state pension will increase from 60 to 65 gradually between 2010 and 2020.
From April 6th 2006, 100% of earned income up to the annual allowance can now be invested in a pension. If the fund value exceeds £1.5 million at retirement, then the excess will be taxed at 55%.
Initially, several changes were announced which would allow direct investment into not only residential property and other “exotic” assets like vintage cars, wine, stamps and art. Surprisingly though the rules were changed at the last minute to remove the tax benefits of investing in these commodities through a SIPP which make the holding of these assets directly by the pensioner unattractive.
Investors may still invest in residential property through a Real Estate Investment Trust (REIT) described further in detail below.
Although in theory, SIPP’s can borrow a maximum of 50% of the net value of the pension to invest in assets of their choice, in practice SIPP trustees are reluctant to allow this apart from the purchase of commercial property.
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