Unlike a traditional personal pension, a Self-Invested Personal Pension (SIPP) may offer for appropriate investors far greater flexibility in terms of the assets that can be held within its tax-efficient wrapper. A SIPP enables investors to spread investment risk across various asset options, but also to select investments that aim to meet any specific requirements and financial objectives set. Please note that any assets held within a SIPP will be owned by the pension fund rather than by you.
SIPPs fall under the same basic rules for contributions and tax relief as personal pension plans. You may invest up to £235,000 in 2008/09 to receive tax relief up to 100 per cent of your earnings. There is a lifetime allowance for the maximum amount payable that is treated as tax-privileged, which is currently set at £1.65m for 2008/09.
When you wish to withdraw the funds from your SIPP, between the ages of 55 and 75 (50 and 75 before April 2010), you can normally take up to 25 per cent of your fund as a cash lump sum, free from tax. The remainder is then used to provide you with a taxable income.
There are also significant tax benefits. The main benefit of contributing to a SIPP is the fact that basic rate tax payments on contributions will be rebated to the fund, which effectively means that, within pension funding limits, you can invest part of your income gross. There have been a number of changes over the years and it is vital that professional advice is taken before considering this retirement planning option.
You also need to balance the advantages of investing in a SIPP with the fact that the set-up costs and charges are likely to be more expensive than for a stakeholder or personal pension. In addition, SIPPs are unlikely to be suitable for smaller pension funds and can be complicated, making them more suitable for sophisticated investors.
A vast array of investments can be held in a SIPP to meet the objectives of your investment strategy. Some of these funds are more common than others, and some are very complex. SIPPs provide the opportunity to invest in many different types of investments including the usual types of investment funds. However this may vary widely between SIPP providers. Broadly, funds can be categorised into two main groups: Conventional funds, such as equity and bond funds, and Alternative funds. They can also be categorised by other criteria such as: |
