SIPP Pension Advice

Is it Possible to transfer funds from other pensions over to my SIPP Pension?

This is certainly possible, and is another feature of the SIPP Pension’s flexibility. Your financial adviser will advise you of the best way to do this, and whether it is in the best interests to do so. Don’t forget, that by transferring out of some pension schemes, you may also be forgoing other entitlements, and there are also the cost considerations to bear in mind for carrying out a transfer.

One thing to consider, is that if you have contracted-out of the State Second Pension under other pension schemes, then you are not able to transfer those entitlements that relate to contracting-out into your SIPP Pension. That element of the transfer value is required to stay in the origiinal pension plan, or to be transferred into a plan which is permitte to accept such an entitlement.

What is the maximum amount if money that I can keep in my SIPP Pension?

This amount depends, and varies over time, and is called the Lifetime Allowance. This is an absolute maximum that can benefit from tax deductions. Again, as with the annual allwance, this is a cumulative figure which applies to all of the pension schemes that you have in place at any one time. The Lifetime Allowance for 2009/2010 is £1.75 million, and for 2010/2011 is £1.8 million.

If the pension funds within your SIPP Pension exceed the Lifetime Allowance then any sum in excess of the LA will be subject to the Lifetime Allowance Charge. This is, in effect, a tax on the excess amount over the LA. If the excess is taken as a lump sum, then this amount is charged at a tax rate of 55%. An alternative way of reducing the tax burden is to take the excess funds in your SIPP Pension as an annual income, in which case there will be an intia charge of 25%, and the remaining funds will be taxed at your marginal tax rate.

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The Pros and Cons of Investing in a SIPP Pension

SIPP pensions have been increasingly popular over the past ten years, as pension holders have become disillusioned with the performance of their existing pension plan.

Many people find it very restricting to be tied in to a pension company’s limited selection of investment funds, you might find the flexibility of a Self Invested Personal Pension (SIPP pension) an attractive proposition. The term is entirely self-explanatory in so far as you remain completely in control of every investment for your pension fund and still enjoy the benefits of the income tax relief that is granted to all pension plans - ie funds you invest is invested before the deduction of tax, so that if you would otherwise have paid the basic rate of 20% tax, every £100 investment is effectively invested for £80.

The pros of a SIPP Pension

Whilst you keep control of the investment decision-making process, you do not need to make all of these decisions on your own. Your SIPP pension can be managed with the help of an independent financial adviser, who will be able to offer all the necessary investment advice and potentially steer you away from rash or unwise investments.

Although you will be paying for the professional management of the fund - by way of commissions that he will take from the investments made - nevertheless the SIPP pension will still cost less than a traditional pension from a pension company.

SIPP pensions were first intended for pension holders with enough capital to maintain a significant pension fund and to pay the fees of an investment manager, but the charges have over the years reduced, so that relatively modest pension funds can be maintained on a SIPP pension basis. The upper limit of pension contributions that can be made into a SIPP is 100% of your salary up to £245,000.

The cons of a SIPP Pension

Ironically, what makes the SIPP pension attractive for pension holders, ie that they are responsible for the investment decision making - is also what makes them dangerous. SIPP pensions are not for the type of investor who knows little about the financial markets, or knows nothing about portfolio diversification, nor indeed anyone who is not at home with doing financial research and making prudent investment decisions.

Although this degree of freedom will be enjoyed by many investors, for other pension holders the range of investments can be daunting. The allowable investments include anything from individual shares to bonds, CFDs, forex, gilts, traded endowment policies, cash or commercial property. However, the government’s original idea to include “exotic” investments such as art, antiques, vintage cars have not been implemented.

Another drawback of a SIPP pension is that the costs of setting up and managing a SIPP pension can be quite high. Set-up costs can be as high as £1,500 and in addition to that, you need to factor in the annual management charge on top of that. In addition, there will be dealing charges to consider, which arise when you buy and sell the investments included in the SIPP pension.

If you get things completely wrong, of course, and end up making poor investment decisions, then the whole of your pension savings are at risk.

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