SIPPs have been in existence for a number of years and are a form of pension wrapper containing investments that will be held until the member retires.
With effect from April 2006, there have been some significant changes in UK pensions legislation giving contributors to SIPPS greater freedom in choice of investment. This creates the opportunity for the member to build a personal pension scheme in which he or she has the power to direct how the contributions are to be invested.
Although, for a non-resident, new contributions to a SIPP are not tax-deductible, the new legislation does create the opportunity to combine all previous frozen UK pension schemes into one portfolio that can be managed more effectively.
The main advantage of a SIPP over a conventional personal pension is that the member will be able to exercise power over the type and range of investments bought and the range will include commercial property either with a mortgage or without.
Retirement can occur between the ages of 50 and 75. Under the new rules 25% of the fund is available as a tax free lump sum, and the remaining 75% must be used either to purchase an annuity or to provide income withdrawal. If the income withdrawal option is taken then the remaining fund must be used to purchase an annuity at the age of 75.
The big advantage of a SIPP is that it is not a requirement to buy an annuity immediately on achieving retirement age.
The range of permitted assets is wide and can include:-
Unlike personal pensions, in which the trustee or administrator owns and controls the assets, in holding a SIPP, the member may have ownership of the assets subject to a scheme administrator (trustee) exercising control. The role of the latter is to ensure that the requirements for tax approval continue to be met.
Originally the proposed tax regime would have allowed direct investment in residential property and other exotic assets such as wine, stamps and art, vintage cars and the like. However in his pre-budget report on December 5, 2005 Gordon Brown surprised everyone by a change in taxation that would make holding these assets unattractive.
With effect from April 2007 the Financial Services Authority will take over regulation of all SIPPS, but up to that time only certain of them will be regulated. The FSA does not necessarily regulate all the investments that a SIPP may purchase. However some investments that can be purchased, such as life policies all unit trusts, are regulated in their own right.
Many of our clients are faced with the fact that they have accumulated rights in a number of different pension schemes in the UK before becoming expatriates, over which they now feel they have little or no control. This causes difficulty in determining exactly how much they can expect from the different schemes and how to fit them into a more cohesive investment strategy. The new legislation extends the transferability of such schemes by permitting them to be combined within one single scheme which may be managed by you, the member, in conjunction with your investment adviser.
The main caveat is to ensure that in transferring from one pension scheme into a SIPP you do not lose the benefit of any protected rights attaching to the old scheme. For this reason, sound advice is needed from a specialist.
However, the benefit of being able to manage your assets under one single investment strategy should not be underestimated. If you would like further advice about the possible benefits please contact us.