A SIPP is a Self Invested Personal Pension that allows you to choose where your pension funds are invested. It offers a flexible and cost effective personal pension scheme giving you the ability to invest your pension fund assets in areas other than insurance company pension funds. You have the flexibility to pay contributions at whatever level you choose within HM Revenue & Customs limits. The wide range of investment powers which can be accessed from within the SIPP wrapper include direct investment within the stockmarket, access to a wide range of unit trust funds, discretionary fund management and direct investment in commercial property. You can combine equity, bond, property and cash funds in whatever proportions suit your goals and your attitude to risk.
| For
details on the funds available, please refer to the Ethical
Fund Supermarket section of the web site. Please
note that it is possible to mix non ethical funds with
ethical funds under the wider investment powers which
a SIPP can offer. |
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For many people, SIPPs have become especially attractive since the introduction of new rules for pensions in 2006:
As an alternative to buying an annuity by their 75th birthday, pension
investors can now continue to take income beyond 75 for life on
what is known as an ‘alternatively secured’ basis, allowing
their fund to remain invested. A SIPP gives investors the freedom
to optimise the level of income they wish to take to suit their
requirements.
Tax
relievable contributions can be made up to 100% of earnings invested
in a tax efficient environment. The government has however set an
Annual Allowance of £215,000 for contributions and excessive
contributions made above the Annual Allowance will trigger a personal
tax charge on the member.
The
new contribution limits mean that an occupational scheme member
can now invest in as many pension schemes as they wish and are no
longer restricted to Additional Voluntary Contributions as a means
of building up enhanced retirement benefits.
If you apply for means-tested benefits, your pension fund will not
be counted with your savings.
If you are declared bankrupt, your pension fund is usually protected
from your creditors.
Stakeholder pensions are low-cost, private pensions that became available on 6 April 2001. Stakeholder pension schemes must meet minimum standards set by the government on charges, flexibility and information. The upper limit on charges is 1.5% per annum of the value of your fund each year for the first 10 years, thereafter reverting to 1% per annum.
A Stakeholder pension works in a similar way to most personal pensions where you use your own money to build up your pension fund. Your scheme invests your contributions in stocks and shares and, when you retire, you use this fund to buy a pension from a pension provider. Stakeholder pensions are available from insurance companies, banks, investment companies and building societies. Other organisations such as trade unions may also offer stakeholder schemes to their members. If you are employed in a company with five or more employees, your employer must provide you with access to a stakeholder pension scheme. Exceptions to this include employers that offer an occupational pension scheme for all their employees to join within one year of them starting work.
At Axxis Financial Planning, we wholeheartedly support the Stakeholder plan, and are keen to advise individuals as well as groups of employees to establish their own ethical stakeholder plan. Axxis has access to the best of the ethical Stakeholder pension plans currently available. Indeed, some of the plans we are able to offer to our clients are not available direct from companies and some are not available through other advisers. Hence, our clients benefit from the broadest range of funds and the best financial advice.
The last decade has seen a significant increase in the number of ethical options available. Trustees of both Stakeholder and Occupational Pension Schemes to declare in a Statement of Investment Principles if and how "social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments". You can request to see a Statement of Investment Principles from any Life Office running a Stakeholder pension scheme.
For more information on SRI issues concerning pension schemes, refer to www.justpensions.org also www.fairpensions.org.uk.
Funding for Retirement
Pension contributions receive initial tax relief at your highest marginal rate of income tax. Contributions are said to be "grossed up", which means they receive immediate tax relief on their pension contributions. For instance, a higher rate taxpayer receives tax relief on contributions at their highest marginal rate of income tax, which is 40%. Hence a £600 pension contribution after tax relief is "grossed up" to £1,000.
You can claim tax relief on payments into pensions equal to 100% of income, up to an annual limit of £215,000. This limit is set to rise each tax year up to 2010, when it will be reviewed again.
Non taxpayers and children can receive basic rate tax relief, even though they have not paid tax in the first place. They can contribute up to £2,808 per annum which is then "grossed up" after tax relief to £3,600.
It is now allowable to set up and contribute to a personal pension whilst being a member of an occupational pension. You may be able to invest more than you can through your occupational pension's AVC scheme and if you opt for a SIPP, it will almost certainly give you more investment options.
There are a range of tax charges which apply to pension funds worth more than £1.5 million.
It is no longer necessary to retire or change employers before drawing tax free cash from pensions after you reach the age of 50. By 2010, the Government intends to raise the minimum age at which pension benefits can be drawn to age 55. There is no compulsion to take an income from your pension if you do opt to take out your tax free cash. In addition, you can avoid historically very low annuity rates by opting to draw an income directly from the pension fund. This is known as an "unsecured pension", or income drawdown. The downside of drawing your income directly from your pension fund is that the capital and hence income are not guaranteed- they are subject to the volatility of the underlying assets. The majority of retirees opt for annuity purchase as a guaranteed way to purchase an income for life.
Since April 2006, it is possible to take 25% tax free cash from types of pension which previously did not attract tax free cash. These would include "additional voluntary contributions" (AVCs), "free standing AVCs" (FSAVC's) and "protected rights" pensions which are funded by contracting out of the State Second Pension (S2P), formerly known as the State Earnings Relating Pension Scheme (SERPS).
