Self-Invested Personal Pensions

Although not suitable for all investors, SIPPs can carry significant advantages over those of standard personal pension products. The potential scope for investment sectors is widened and investors looking for retirement provision with greater investment risk and reward may be drawn towards more bespoke pension planning.

In effect a SIPP is an empty box, or wrapper, which can contain many investments, approved by HMRC for pension purposes. By using a SIPP wrapper you are not tied to the products of one pension provider, but are free to choose the most suitable investment vehicle for your circumstances.

A SIPP arrangement with pension fund withdrawal offers the facility to take retirement benefits by means of drawing income directly from the fund rather than having to purchase an Annuity. This is a particularly important facility as it allows you to remain invested whilst drawing retirement income and has important consequences when considering estate planning and death benefits. Furthermore, the investment flexibility inherent in the plan gives the scheme the opportunity for some significant gains.

Benefits can be taken from the age of 55 and you do not need to stop working in order to take benefits from the plan. HMRC may permit certain exceptions to the age limit if you are in serious ill health.

SIPPs are complex and as a result financial advice is recommended before enacting a scheme for your retirement.

At Retirement

Deciding when and how to take your retirement benefits can be a daunting process and without the relevant advice you may find that you pay more tax or receive fewer benefits than you were first expecting.

On retirement you can use the money that has built up in your SIPP to purchase pension benefits, these benefits can be taken in the form of either income or income with a tax free cash lump sum (The Pension Commencement Lump Sum). These plans allow flexibility and your fund can remain invested whilst pension benefits are being drawn. This flexibility allows for income to be taken from specific investments within the SIPP, whilst excluding certain investments from requirement to withdrawal in order to pay your income.

The value of your pension at retirement is mainly dependent upon your level of contributions over the life of the plan, investment performance and the age from which you wish to draw benefits (currently pension benefits can be taken from the age of 55). So, a SIPP is really just a long-term saving plan, in a tax efficient wrapper, designed to produce a fund and level of benefits at retirement.

However, pension provision can be complex and the decision of when to draw benefits and at what levels are not to be taken lightly as the initial decision can impact heavily upon the remainder of your retirement. It is therefore recommended that advice be taken prior to drawing pension benefits in order to minimise the negative impacts of your decision whilst maximising the potential for efficient retirement planning.

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