Self-invested Personal Pensions (SIPPs)
What is a SIPP?
A SIPP is a Self-Invested Personal Pension - a type of personal pension scheme.
The SIPP itself is a pension 'wrapper' that holds investments until you retire and start to draw a pension income. Most SIPPs allow investment in a range of assets including commercial property. 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. As with any pension fund, you cannot take money from the fund until age 55.
Income Drawdown
One of the benefits of most SIPPs is that, within the rules, it is possible to take your Tax-free cash allowance out but leave the balance of your retirement fund invested until later. This is known as Income Drawdown. Since 6th. April 2006, the minimum level of income that you must draw is now NIL, with the maximum being defined by what is known as the GAD (Government Actuary Department) calculation. More recently, however, many Personal Pensions are also able to offer the drawdown route. - We find these sometimes to be a better option as the charges tend to be lower.
You can increase or decrease your level of income drawn over the years.
One advantage of this is that the annuity rate (the rate at which your pension fund provides you with income) tends to increase with age. You may not need additional income at present, as it would normally add to your tax bill, especially if you are still working.
A disadvantage is that, if you defer taking it for too long, you may die before getting the advantage of the income, although the remaining fund is normally returned to your estate, or could provide your spouse or partner with an income after your death.
Drawdown may be the preferred option for those individuals looking to retain control over their investments, as their fund remains invested. Once an individual is in drawdown, they can still choose to buy an annuity at any time so it may also be used to defer annuity purchase as opposed to deciding against it completely. However, it is important to be aware that it may provide less income than if an annuity had been bought in the first place. Drawdown is also likely to be chosen because of the improved death benefits that it offers, in that the balance of unused fund is returned to the family upon death. - This can have various taxation implications which should also be checked out.
Drawdown and SIPPs are a complex area. It's a good idea to get professional advice because what you decide now will affect your pension income for the rest of your life
The information set out on this page is intended to provide a general appreciation of the topic and it is not advice. Guidance should be sought from a specialist who is qualified to advise in your specific circumstances.
For more information on any aspect of Pensions please contact Surrey Financial Advice on 01483 211800 or email us at admin@surreyifa.co.uk We will be happy to assist you.
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