For many people a SIPP pension has become an attractive and Tax efficient method for long term saving.
Pension reform has widened the investment options available to the individual and has relaxed the rules which govern the purchase and sale of assets into a pension plan.
SIPP Pension Benefits
Another major change introduced from April 2006 is in the way individuals can take benefits or draw upon assets within a pension. When an individual wishes to retire, there is greater flexibility and choice when it comes to deriving an income.
Individuals now have the option of pension drawdown as well as the purchasing of an annuity – this gives greater control over the initial level of income derived and income flexibility during retirement.
A SIPP will allow regular and lump sum cash payments, and you will also be able to transfer other pension arrangements into the scheme. If you are employed, your employer can also pay into the plan. In addition SIPPS will allow investments from a wide range of sources including Commercial Property, shares and unit trusts.
There’s a limit to the amount you can invest in pension plans every year before you are taxed on your contributions. It’s set by the Government and it’s called the annual allowance. The annual allowance for 2012/2013 is £50,000.
As well as an annual allowance charge, there’s a limit to the amount you can have built up in any pension plan when you start taking your retirement benefits. It’s set by the Government and it’s called the lifetime allowance. The lifetime allowance for 2012/2013 is £1.5 Million.
Downsides of a SIPP and Important Considerations.
SIPPS are very high risk investments and are suitable for only a few investors. Investors should be willing to risk potentially losing their retirement fund aswell as their business should the business fail. It is vitally important to always seek advice before investing in a SIPP. Investors usually pay higher charges for the benefits of utilising a SIPP
SIPPS are aimed at people who want to manage their own fund by dealing with and switching their investments when they choose. These schemes are suitable for people who are happy to pay higher charges than most personal pension plans.
SIPPS are geared towards experienced investors with large funds. Investors need to have strong credible business plans and should be happy to tie their retirement plan to their business. SIPPS investors should accept a much higher risk investment strategy knowing that they could lose their retirement fund as well as their business should their business fail. SIPP investors should be happy to pay higher charges compared to most personal pension plans.