SIPP - Self Invested Personal Plan

SIPP

WHAT IS A SIPP?

SIPP

A Self-Invested Personal Pension (SIPP) is a tax privileged savings plan with the purpose of building a capital sum to provide an income at retirement.
A SIPP offers a wide range of investments allowing you to develop a bespoke investment strategy tailored to your retirement needs

Objectives

To help you invest for the future by taking advantage of the tax privileges available.
To give you control over your investments.
To give you the flexibility of drawing benefits from the arrangement in stages to suit your own personal needs.
To provide the option of drawing a Pension Commencement Lump Sum, (usually tax free) in return for a reduced pension.
To work closely with your financial advisers providing full technical support on your pension matters.
To provide your dependents with an income or lump sum on your death.

Member Responsibilities

Credit the SIPP (by way of contributions or transfers from existing schemes), with sufficient funds to provide the benefits you require.
Conduct a regular review of your arrangement with your financial adviser which is especially important when you initiate pension benefits.
Make any necessary adjustments to ensure your fund is kept on track with your requirements.
Accept that in normal circumstances you are unable to access the funds until you reach age 55.
Regard your Self-Invested Personal Pension as a long term investment.
Advise Brooklands Trustees Limited of any relevant changes in your circumstances (i.e. residency status and if/when you lose entitlement to tax relief).

Possible Risks

The growth of your fund will depend on the performance of your chosen investments.
Information on past performance of an investment should not be taken as a guide to future performance.
If investment growth is less than expected you may need to make additional contributions to provide the benefits you have planned for.
The tax rules and pension legislation may change to your disadvantage.
The wide range of investment markets that you can select will have different risks attached to them.
Some investments may not be readily realisable and you may not be able to liquidate the investment when you choose to.
If you have applied for either Enhanced or Primary Protection or are relying on Fixed Protection and make a contribution to the scheme, this will invalidate HMRC's certification and may lead to a tax change.
Inheritance tax may apply on death depending on individual circumstances.
As well as investment growth, your plan benefits will depend on the amount paid into the scheme along with charges.
Your plan benefits will be dependent on the value of the fund along with the Government Actuary Department rate at the time you draw benefits.
Income Drawdown may deplete your fund quickly when combined with weak investment performance.
Under Income Drawdown rules your HMRC maximum pension limits must be reviewed every 3 years.
Brooklands Trustees Limited charges or those levied by your financial adviser may increase in the future.
If the total value of all of your pension arrangements exceeds the permitted lifetime allowance when you commence benefits there may be a tax charge.
We recommend that you consult a financial adviser when looking at investment options as well as Capped Drawdown, Flexible Drawdown or Annuity Purchase.

Frequently asked questions

How do I fund the SIPP?

You can transfer existing HMRC approved pension arrangements into your SIPP.
If you are UK resident or receiving earnings which are subject to UK tax you may make both ad-hoc and regular contributions into the same arrangement.

What can transfer into my SIPP?

You can transfer any Non Protected Rights, registered UK or Overseas Pension Scheme into the SIPP and any Protected Rights d as an option to the SIPP.
If you are looking to transfer in another arrangement you should seek financial advice as to whether such a transfer would be appropriate for you.

How much can I contribute to my SIPP?

Contributions can be of any size and made at any time, however, you should be aware that the provision of tax relief will be dependent on the contribution being made before age 75 and in keeping with HMRC annual allowances.
You can make a contribution equal to your entire annual salary, up to a maximum of the annual allowance in any one tax year.
The annual allowance is £50,000 for the 2011/12 tax year. Thereafter the limit will be increased or decreased at the discretion of the UK Government.
In certain circumstances it may be possible to make a contribution of up to £2,880 net (£3,600 gross) even if you do not have any earned income.
The above contributions will qualify for tax relief at your highest marginal rate.
Your employer can make a contribution of up to the annual allowance in any one tax year whatever your income.

Do I have to reclaim the tax relief from HMRC?

If you are a basic rate taxpayer we automatically reclaim the basic rate tax relief on your personal contributions and add this to your plan.
If you are a higher rate taxpayer you will have to reclaim the additional tax relief via your self-assessment tax return.

What will I receive when I take benefits?

Your benefits will be dependent on the size of the fund that has been built up and the rate for converting the fund into income at the time of taking benefits.
The size of the fund will depend on the amount paid in, the performance of the investments and the effect of charges.
When you use your fund to provide benefits, up to 25% can usually be paid out as a pension commencement lump sum.
With the remainder of the fund you can choose either to purchase an annuity or enter into 'Capped Drawdown' (or 'Flexible Drawdown' if eligible) or a combination of both. Income will be assessed under PAYE rules.
Capped Drawdown allows you to leave the fund invested and draw an income from the fund however, you do not have to draw an income from the fund.
HMRC set the maximum income that can be drawn and this is broadly equivalent to 100% of the income you could have received from a single life annuity.
Flexible Drawdown can be taken if the member makes a declaration that the 'Minimum Income Requirement' (MIR) is satisfied at the time of declaration and evidences this.
MIR for the 2011/12 tax year is a Relevant Income in that tax year of at least £20,000. HM Treasury will review this limit at least every 5 years. Generally 'Relevant Income' means guaranteed Lifetime Annuities.
You are able to use your fund to purchase an annuity on the Open Market at any time after you have reached age 55.

Is there a limit to how much pension fund I may have?

When you draw benefits from your plan, there is a lifetime allowance that applies to the total value of all pension schemes that you are currently or have previously been a member of, even if you have not contributed to them yourself.
The lifetime allowance for tax year 2011/12 is £1.8M and will fall to £1.5M from 6th April 2012. Thereafter the limit will be increased or decreased at the discretion of the UK Government.
If the total value of your arrangements at the time you start drawing benefits exceeds the lifetime allowance there may be tax penalties.
In certain circumstances you may be entitled to an enhancement of the lifetime allowance, you should seek financial advice to see if this applies to you.
Tax penalties may also apply where lump sum death benefits exceed the lifetime allowance.
If you believe that your limits are likely to exceed the lifetime allowance then you should seek professional financial advice.

Can I take my money out early?

You can take benefits as early as age 55 but these benefits may be lower than expected.
You may transfer your fund to another registered pension scheme at any time; however, a personal pension scheme may not be encashed.
If you become seriously ill it may be possible for you to take your pension earlier than expected, under 'ill health' rules or have your full fund commuted as a tax-free lump sum.

What are the death benefits?

Before you have taken benefits (i.e. a pension commencement lump sum or income), the full value of your fund will be used to provide benefits to your beneficiaries after your death. This could be a cash lump sum or income or a combination of both.
After age 75, a 'Recovery Charge' of 55% will apply to the fund value regardless of whether pension benefits have been taken or not.
The Trustees of the scheme will take into account your circumstances and any beneficiaries nominated by you, however, the trustees of the scheme have absolute discretion over who receives the death benefits from your plan.

Can I change my mind?

Under the Financial Services & Markets Act 2000 you have the legal right to cancel your application within 30 days.
Upon receipt of the application we will issue a cancellation notice to your email address in the first instance otherwise to the address given.
In certain circumstances you may wish to waive your right to the 30 days cancellation period.
Where you have elected to waive the right to cancel the application then the SIPP will be deemed as fully open and you will lose the right to cancel the application.

What happens to my funds if I cancel the SIPP?

If you elect to cancel the SIPP within the cancellation period any funds received by way of contributions will be returned back to the payee.
The cancelled transfer value will either need to be transferred to an alternative arrangement or, if possible, returned to the original transferring scheme.

QROPS Direct News:December 15, 2011

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