What You Must Know About SIPPS
SIPPS or Self Invested Personal Pension is a type of personal pension with far greater freedom levels on how you invest your pension funds that you can get with other pensions.
Like other pensions, a SIPPS offers a tax relief of up to 45% on contributions and you will not be required to pay any further UK income tax.
The tax benefits depend on tax rules and individual circumstances.
Traditions pensions limit narrow your investment choice to small list of funds run by the pension company’s own fund managers.
SIPPS allows you to choose your investments and invest anywhere you like.
In addition to that, you can manage your SIPP online, which means that you can buy and sell investments from the comfort of your home or anywhere around the world provided you have access to the internet.
This means that more of your cash will be working for you. It has made it possible to deal shares from £5.95 to £11.95 a deal in addition to low annual charges on a number of tops funs.
SIPPS Investment Choices
Vintage SIPPS allows you to choose from many funds operated by some of the best fund managers.
You can also select from a corporate bonds, investment trusts, individual shares, ETFs and cash.
The size of your retirement pot is determined by your interest in the SIPP.
What Happens To Your SIPPS When You Retire?
SIPPS allows you to take making withdrawals up to 25% tax free. The rest is taxed as income.
Vintage SIPPS offers pension freedom so that you take as much as you wish from pension.
You can take a lump sum or a regular income. Your pension should sustain you throughout your retirement.
You can aways get professional help with UK pension planning to clarify all the details you need to know.
What Are The Benefits Of SIPPS
SIPPS are money purchase pension schemes. Here are the factors that determine the value of your retirement benefits:
- The total amount contributed
- The period each contribution had been invested and investment growth over the period
- The level of charges
Under current legislation, you can only start drawing retirement benefits when you reach 55 years and you can continue to draw benefits even when working.
You can withdraw up to 25 percent of your tax free of your accumulated pension fund. The balance can be used provide a monthly income.
The amount you receive on a monthly basis depends on the option you choose.
Income during retirement can be provided in different ways. This includes taking out an income drawdown and annuity.
Pension income paid is liable to income tax, but not liable to National Insurance contributions.
If you have previously contributed to a pension, you may remain benefits of the scheme. You should consider transferring the value of your old pensions to a new pension scheme.
Are you wondering what does a QROPS Brexit mean For UK Expats in South Africa?
Tax Benefits Of SIPPS
One of the main benefits of SIPPS is tax benefits. When you make your personal contribution, you will be given a basic tax rate relief of 20%, which means that you only pay £800 into your SIPP.
The Taxman will then invest an additional £200 to make it £1000.
If you don’t have any UK earnings, you can make contributions of £3600 annually, including tax relief.
Therefore, you will invest £2,880 HMRC would add another £720 into the SIPP.
High rate tax payers can, however, reclaim an extra 20% tax relief through their self-assessment.
The investment powers offered by SIPPS allow you to invest in a range of assets, including:
- Unlisted shares
- Investment trusts
- Collective investments such as unit trusts and OEICs
- Quoted UK and abroad shares and stocks
- Land and property insurance bonds
Such properties are usually rented out and the rental income collected by the SIPPS and channeled towards mortgage repayments and the cost of managing the property.
However, not all SIPP allow you to invest in all allowable investments.
Self-Invested Personal Pensions with specialist investments such as property may pay higher charges than pension schemes with mainstream investments
We’ve prepared a detailed article with all the details about QROPS. Make sure you check it.
Contributions To Your SIPP
Your employer is not obligated to contribute to your SIPP. But when an employer contributes, you will also be required to contribute.
One of the main advantages of Self-Invested Personal Pensions is that they are portable and flexible.
If you stop working or change jobs, you can continue making contributions to the pension scheme and if you are hired by a new employer, they may also contribute to it.
If you change jobs, you should inform the pension provider so that your contributions continue, especially if your previous employer used to pay the contribution on your behalf.
There are no restrictions on the number of pension schemes you can belong to.
However, there are limits on the amount you can contribute to the schemes each year if you are to get tax relief on contributions.
If you find this article useful make sure to check our in depth guide on QNUPS. It will help you make an informed decision about your future pension investments.