A SIPP can be set up either by an individual or their employer. All SIPP’s need to be set up via a HMRC approved provider. These consist of insurance companies, fund managers and pension consultants amongst others. A SIPP can be created from naught or set up by a transfer from another pension plan.

The plan will consist of at least one scheme provider and one scheme administrator, however some providers may use multiple companies to set up your SIPP. If your plan is trust based and you are not the trustee, the provider or another HMRC approved company must act as a trustee.

Do I need significant wealth to set up a SIPP?

No, but the larger the fund the more beneficial investment opportunities arise. SIPP’s are restricted in the amount they can borrow.

Charges imposed by providers are usually subject to a minimum flat rate fee, which can render smaller contributions unviable.

You can use your SIPP to invest in property, however the funds must be sufficient enough to purchase the property either outright or with a mortgage.

Facts

To analyse, a SIPP is essentially a pension wrapper that can hold a variety of different investments and aims to provide you with tax efficient savings for your retirement. SIPP’s offer a far greater level of control for an individual than most conventional pensions whilst allowing them to pick and choose their own investment strategy.

It is fairly common for persons to have more than one pension scheme. One of the more beneficial selling points of SIPP’s is that you can transfer in pre existing pensions, allowing you to consolidate your pension savings into one easier to manage plan.

Recent Changes

If you fall under any of the following criteria it is suggested that you speak with a qualified financial advisor to discuss the recent change in regulations regarding pensions.

• If you are or are getting divorced
• If you own a personal pension which is ‘frozen’
• If you own a company pension where your employer has ceased trading or is closing down
• A pension plan with a company that no longer issues pensions

Since the new regulations came into force on pension A day in April 2006 the law regarding charging structured have changed drastically. Due to the introduction of stakeholder pensions, chargers applied to new pension plans are more often than not considerably lower than previously. This means that many individuals who have existing pension plans may be being overcharged on outdated pension contracts. Furthermore, the majority of older pension plans are facing a shortfall on maturity due to poor performance. It is for these reasons that more nowadays are using SIPP’s as their premier pension scheme.

Tax Benefits

A basic tax relief of 20% is applied to all pensions by the government. However higher rate tax payers can receive a further 20% tax relief creating a bonus of up to 40% on the funds invested, for example receiving GBP10K in their pension fund for every GBP6K invested.

To qualify for the higher (40%) tax rate your income must be between GBP37.4K and GBP 150K. If your income exceeds GBP150K you may be liable to n additional rate of 50%.

New restrictions imposed by the UK government now include employer contributions, meaning that those with incomes over GBP130K will no longer be entitled to a higher rate of tax relief.

Once you have invested into your SIPP the gains you make will be free of Income and UK capital gains tax, whist still receiving the 20% tax relief from the government.

Should you pass away before you start receiving your pension benefits then the remaining funds can be passed to your spouse, family or any other predetermined beneficiary. It should be noted that further tax charges may apply when dealing with inheritance and you should consult with a financial advisor to discuss your options.