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Self-Invested Personal Plans (SIPPS) |
Self-invested personal pensions
The self-invested personal pension (SIPP) itself is a pension wrapper that holds investments until you retire and start to draw a pension income.
SIPPs are designed for people who want to manage their own fund by dealing with, and switching, their investments when they choose. They may have higher charges than other personal pensions or stakeholder pensions. For these reasons, they are more suitable for large funds and for people who are experienced with investing.
With standard personal pension schemes, your investments are managed for you within the pooled fund you have chosen. SIPPs are a form of personal pension scheme that give you the freedom to choose and manage your own investments. Or you can employ and pay for an authorised investment manager to make the decisions for you.
Most SIPPs allow you to select from a range of assets, such as:
• particular stocks and shares quoted on a recognised UK or overseas stock exchange;
• government securities;
• unit trusts;
• investment trusts;
• insurance company funds;
• traded endowment policies;
• deposit accounts with banks and building societies;
• National Savings products; and
• commercial property (such as offices, shops or factory premises).
This list is not exhaustive and different SIPP operators will offer different ranges of investment choices.
It’s unlikely that you will be able to invest directly in residential property within a SIPP. Residential property can’t be held directly in a SIPP with the tax advantages that usually accompany pension investments. But, subject to some conditions including restrictions on personal use, residential property may be held in a SIPP through collective investment vehicles, such as real estate investment trusts or property trusts, without losing the tax advantages. However, not all SIPP operators accept this type of investment.
Before 6 April 2007, most SIPPs were not regulated by the FSA. This usually means that complaints and problems that relate to events before this date about SIPPs are not covered by our complaints and compensation arrangements. From 6 April 2007, the FSA regulates the operation of all personal pension schemes and the sales advice process.
What are the benefits of a SIPP?
SIPPs are designed to be a flexible way of earning a tax-efficient return on your investments. Unlike an ISA, with a SIPP you also get full tax relief on any contributions you make to your SIPP.
All your pension contributions qualify for basic rate tax relief.
Here is how it works:
Any contribution you make is net of basic rate tax. This means that if you were to invest £800, an additional £200 would be collected automatically from the Inland Revenue on your behalf, added to your account, and be available to invest 6-11 weeks later. Higher rate tax payers making contributions on their own behalf can reclaim a further 20% through their self-assessment forms.
Further tax information:
Income tax
• Your pension contributions qualify for tax relief at your marginal rate (ie the rate of tax you currently pay)
• When you come to receive benefits, you can take out a lump sum (typically 25%) tax free
• Any income you get from your pension is taxable Capital gains tax
• All your SIPP investments are protected from capital gains tax
How much can I invest each year?
The annual investment allowance is £235,000 for 2008/09 and will increase each year. Up to 100% of annual earnings receive tax relief up to this limit. The annual allowance may increase in future years, but this is not guaranteed.
All your pension contributions qualify for basic rate tax relief. Any contribution you make is net of basic rate tax. This means if you were to invest £800, an additional £200 would be collected automatically from the Inland Revenue on your behalf, added to your account, and be available to invest 6-11 weeks later. Higher rate tax payers making contributions on their own behalf can reclaim a further 20% through their self-assessment forms.
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