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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SIPP Tax and Eligibility - Who Can Make a SIPP Contribution?
The question of who can make a contribution into a SIPP Pension come up frequently. The answer is, in fact, fairly straightforward. Anyone can contribute to a SIPP pension, but you can claim tax relief on the contributions only if you are not older than 75, and in addition can satisfy at least one of the following stipulations:
* You have taxable income in the UK, ie you have earned income from within the UK which derives from your employment or from a self employed business.
* You are UK resident during the tax year when you make the contribution.
Is my employer allowed to make a contribution to my SIPP Pension?
Of course, your employer is permitted to contribute, and this is one of the key benefits of a SIPP pension. Contributions are allowable for corporation tax relief if the contributions are ‘wholly and exclusively’ for business purposes.
How much is the Annual Allowance for a SIPP Pension?
The Annual Allowance restricts the quantum of tax benefits you can obtain by contributing through your SIPP Pension. This applies to all pension contributions through all of your schemes that you have in place - so if you are contributing through your company scheme, or any other traditional pension plans, then you need to take these into account when calculating your allowance. If you exceed this allowance, then you will be liable to pay an annual allowance charge, which is currently set at 40%.
The Annual Allowance for tax years for 2009 is GBP245,000, and for 2010/2011, is GBP255,000. After the 2010/11 tax year, future increases in the Annual Allowance will be determined on an annual basis, and will be notified in due course by the tax authorities in the UK.
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UK SIPP Pensions - Are They Right For You?
Over the past 18 months or so, the financial services authority in the UK has conducted a thorough research exercise into UK SIPP Pensions, and taking a close look at cases where people have been advised to transfer from a cheap stakeholder pension or traditional pension plan to a more expensive UK SIPP Pension (which stands for ’self invested personal pension’).
The main reason to transfer to a SIPP is the investment choice is far broader - you may have access to literally thousnads of investment funds through this type of vehicle or more specialized areas for example gold, real estate, individual stocks and shares, and foreign currency instruments.
The key advantage of a UK SIPP Pension is its flexibility. Unlike other tax-efficient saving schemes, a SIPP gives you the ability to invest in a wide variety of stock market investments so you can potentially access higher rates of return even if interest rates are low. This will not be perfect for everyone, as a UK SIPP Pension can be exposed to more risk, but for those who are not attracted to the rates offered by savings accounts and ISAs, SIPPs are a great alternative.
However, many people are now questioning whether pension investors actually require such access to specialized investments. One of the downside of a UK SIPP Pension is that there are some set up charges which are payable to the SIPP trustee and administrator, which run into hundreds of pounds. In addition, there are ongoing dealing fees for each tttransaction carried out under the SIPP.
If you have arelatively small pension pot, you need to carefully consider whether a UK SIPP Pension is really cost effective for your retirement requirements. One alternative for you may be to invest in one or two pension funds in a cheaper stakeholder or traditional pension and save money on administrative and management fees.
The best thing to do if you are unsure as to the best way forward is to contact an independent fiinancial advisor, and ask him to do a review and look at the costs you are paying on your current arrangements, and how these may differ with a UK SIPP Pension. The average UK SIPP Pension may charge you around 2% per annum, whereas a typical stakeholder pension would cost only 1% - potentially saving you approx £2,000 per annum based on a pension fund worth £200,000.
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Self Invested Pensions are becoming increasingly popular. To start up a SIPP an individual or their employer needs to approach an approved provider. These are normally insurance companies or fund managers but a comprehensive list is publicly available. You must use one of these providers to take full advantage of the tax benefits. Once a provider has been chosen, the plan holder can then manage the portfolio themselves, or they can appoint a manager to act on their behalf.
One of the key benefits of a Self-Invested Personal Pension is the tax advantages. Like all other personal pension plans, contributions to SIPPs are automatically exempt from basic rate tax. If you are a higher rate payer, you can claim additional relief in your tax returns. Similarly, if you have used your SIPP to invest in assets such as property, the income you receive is tax-free and is not subject to capital gains tax.
As with all pension plans, after retirement, the income that you draw-down will be subject to the usual income tax rates. The money you earn from your investments is also allowed to be reinvested tax-free, up to a threshold £235,000. Reinvesting your income is a great way of growing your pension pot without any upfront costs.
Another key advantage of a SIPP is its flexibility. Unlike other tax-efficient saving schemes, a SIPP gives you the ability to invest in a wide variety of stock market properties so you can potentially access higher rates of return even if rates are low. This will not be perfect for everyone, as SIPPs can be exposed to more risk, but for those who are not attracted to the rates offered by savings accounts and ISAs, SIPPs are a great alternative.
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A SIPP (Self Invested Personal Pension) gives you more choice and control over where you can invest your money.
While most traditional pensions limit where you can invest to a small list of funds, normally run by the pension company’s own fund managers, a SIPP allows you to invest pretty much where you like.
You can choose from thousands of funds run by top managers including Artemis, Fidelity, Invesco Perpetual, Jupiter and Schroder, as well as pick individual stocks and shares, bonds, gilts, investment trusts and exchange traded funds.
A SIPP offers many investment advantages over traditional pensions such as flexibility, diversification potential and sheer investment choice. They are not restricted to the limited fund range offered within an ordinary personal pension or stakeholder pension. A SIPP investor can choose from, and switch between, a vast choice of unit trusts, investment trusts and Open Ended investment Companies (OEICs), from across the market. You can therefore create a rich, diverse investment portfolio with these possibilities.
It is also possible to invest in individual quoted shares, bonds, gilts and many other types of investment such as commercial property but there will be more expense attached to this. The allowance of direct investment in stocks and shares means that a discretionary fund manager can run a portfolio of shares and/or collective investments for you within your SIPP.
The benefits of a SIPP
Due to the investment flexibility of a SIPP, you won’t have to change your contract if you want to switch investments e.g. increasing or decreasing your funds to a higher or lower risk. In terms of tax benefits, investment limits and retirement options, a SIPP works exactly the same as any other personal or stakeholder pension.
Traditional pension plans tend to offer a narrow choice of funds managed only by the pension provider and no option is given to use funds managed by other fund managers. They can also carry hefty charges, particularly on older plans. One possible drawback of using a single fund manager is while they may have expertise in one particular area, they are unlikely to have the best record across all fund sectors. One fund manager may offer a good Property fund, while another may be renowned for its expertise in picking US shares
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