In recent years, the pensions and financial services market has undergone considerable growth, with some exciting new investment options. At the same time, making provisions for our later years has become increasingly important.
What are SIPPs?
A SIPP (self-invested personal pension) is suitable for people who prefer to make their own decisions about their long-term savings. Of particular interest to expats, SIPPS are an ideal wrapper for pension transfers. There are tax advantages, too: in the UK, current relief rates on pension contributions vary between 20 percent (for basic rate taxpayers) and 45 percent.
Is a SIPP Right for Me?
By definition, SIPP funds pay retirement income from at least 55 years of age or 57 from the year 2028. An efficient investment vehicle, SIPPs can gather diverse pensions into one cumulative pot. They enable a pension saver to consolidate smaller separate pension entitlements that may have accrued over time in different jobs or smaller plans.
Additionally, for individuals who own commercial premises, some SIPP policies also offer an advantageous way to optimise one’s asset portfolio.
Low-cost SIPPs and QROPS
In contrast, low-cost SIPPs are suitable for smaller funds; they usually operate on an execution-only basis. Some providers offer hybrid options through insurance companies while in contrast, QROPS (Qualifying Registered Overseas Pension Schemes) are specifically designed for expats considering a pension transfer.
Where can I invest my funds?
First launched in 1990, SIPPs offer broad choice, generous tax benefits and hands-on control of individuals’ pension funds. With such plans, it is usually possible to invest in unit trusts, investment trusts, venture capital companies and exchange-traded funds as well as a variety of shares, bonds and PIBS (permanent interest-bearing shares). Essentially, a fund may invest in any securities quoted on a stock exchange within CREST, the UK-based central securities depository that trades UK gilts and equities, as well as Irish equities and international securities. Within the trading system, investment transactions take place electronically.
Features and Benefits of SIPPs
SIPPs usually feature lower charges than a PPP (personal pension), along with a wider variety of investment funds than a stakeholder pension. Notably, PPP regulations preclude direct investments of individual retirement funds in stocks and shares, for instance.
Apart from an initial pension transfer to a SIPP, it is also possible to make additional periodic contributions. Employers and other individuals (e.g., family members) may also pay in, should they wish. Some financial services providers give customers online access to manage their do-it-yourself plans, thus representing a quick and convenient option for expats.
On the selected date of retirement, the plan holder may opt to take the entire fund as cash or to establish a flexible drawdown schedule.
It is advisable to check the charging structures on proposed plans, as well as any dealing costs which vary considerably, depending on the policy and provider. Notably, as well as growing, investment values can fall – so investors do not get part or any of their money back. Some investments may be risky, so it pays to choose wisely; the DIY aspect of SIPPs may deter some savers.
Pension regulations and levels of tax relief may change in the future. One should also bear in mind that tax may be payable on future income from the fund.
In summary, SIPPs are often a practical and useful alternative to leaving your pension fund in your home country. Here at Belgravia Wealth Management, our experts will be delighted to advise you on the self-administered and other pension choices available to you.