Frank Sinatra lived his way. Sometimes we like to have more control of our lives. We might decide to sell our own homes, in order to reduce the hassles and costs involved in hiring an estate agent. Other times we personally handle the home repairs and home furnishings in our abode, so we can take full responsibility for any mishaps. We may even prepare our own favorite meals home, so it is precisely the way that we want it.
Likewise, if you want more control of your pension, then you should consider a SIPP pension. With a SIPP pension, you can cut out the middleman, and have more control about your pension fund. Of course, the drawback of managing your financial matters is that you must take full responsibility for any setbacks. Thus, you should consider the risks and rewards of SIPPs.
SIPP stands for “self-invested personal pensions.” This is a Do-It-Yourself (DIY) type of pension. You yourself decide how to invest your money into a (personal) pension account. SIPPs have existed since 1989, and shares and cash are the main items to invest into SIPPs.
1. You can place numerous investments into SIPPs
Various types of investments are eligible for you to invest into the best sipp. As long as your SIPPs providers offer the following types of investments, you can include them as SIPPs investments:
deposit accounts with banks and building societies
direct property investment
government securities
insurance company funds
investment trusts
National Savings products
property
stocks and shares
traded endowment policies
unit trusts
2. SIPPs let you invest in residential property
The UK government has flip-flopped more than a fish about what exactly you may invest in SIPPs. Initially, you could only invest cash and shares. After giving the green light on investing various items such as art and antiques, they reneged on this change. Eventually they added residential property to the list of valid SIPPs investments, besides shares and cash.
Why should you consider investing residential property into SIPPs? In short, the main reason is: TAX BREAKS. Investing property into SIPPs allows you to avail of some huge tax benefits. When you purchase the property, the taxman provides the SIPPs fund with a tax credit, equal to the basic tax rate. At the end of the tax year, the government supplies a tax rebate for the initial investment in the property, in addition to the additional tax credit that the fund receives. This adheres to sipp rules.
Keep in mind, however, that some the properties must meet certain criteria:
A syndicate with a minimum of ten people must purchase the property
The syndicate’s members must be unrelated
The syndicate’s members cannot utilize the property for personal use
3. SIPPs provide flexibility
One of the main benefits of SIPPs is that they provide you with more flexibility than other types of pensions do. Each pensioner has unique needs, and SIPPs provide you with options to invest in the manner you see fit, prior to your retirement.
4. The taxman does not cometh
Do you like tax breaks? Like all other pension investments in the UK, investments into SIPPs are tax-free. Furthermore, when you transfer monies from other investment funds, into SIPPs funds, no taxes are charged. Another way to avail of monstrous tax breaks is by investing residential property into SIPPs.
5. SIPPs put you in the driver’s seat.
As the saying goes, “knowledge is power.” With SIPPs, you have the power to make decisions about investments in your pension. While this will require you to do some homework in order to make informed decisions based on sipp rules, eliminating the middleman will give you more options.
In addition, you might be accustomed to only receiving an annual statement regarding your pension. However, SIPPs are a perfect fit for the Information Age in which we find ourselves. Several providers of SIPPs allow you to view the latest SIPP valuations, via their web sites.
6. You could avoid purchasing an annuity
If you can afford to cover your living expenses on a reduced income, then you should consider a SIPP. Currently, you can withdraw money from the SIPP fund, while you are between the ages of 50-75. It is possible to withdraw a maximum of 25% of your SIPP fund, via a lump sum (that is tax-free). You could then purchase an annuity, or an “Alternative Secured Income.” Upon your death, your spouse, and then your other relatives (upon your spouse’s death) can avail of the SIPP fund.
7. The government raised and again will raise the SIPP ceiling
In April 6, 2006, the UK government raised the ceiling on SIPPs annual investments, to 215,000. The news keeps getting better! By 2010, the UK government will raise that ceiling again, to a whopping 255,000. This will give you more options find the best sipp.
Okay, most of us will never be able to hit SIPPs’ maximum investment figure. In that case, the maximum amount that you can contribute to your SIPP is your gross income that is pensionable.
8. SIPPs can provide inheritance tax relief
If you were to die prior to withdrawing money from your SIPP fund, your family could access your pension without paying any inheritance tax. However, Inland Revenue makes the ultimate decision about how much (if any) inheritance tax they would charge. If you want to contribute to a SIPP and avoid inheritance tax, then it is advisable that you consult an Independent Financial Adviser (IFA).
9. The FSA now regulates SIPPs
In 2007, the UK’s Financial Services Authority began regulating personal pensions, including SIPPs. Thus, authorised SIPP advisers and operators are required to adhere to the FSA’s SIPP rules. The FSA’s regulation of SIPPs provides you with an extra measure of confidence that advisors and investments related to SIPPs must adhere to the UK government’s standards.
UK government information through the FSA can provide you with practical guidance about SIPPs.
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