 Self
Invested Personal Pensions (SIPPs)
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. Investment choice
The range of permitted assets is wide and can include:-
- listed stocks and shares
- futures and options traded on a recognised exchange
- authorised UK unit trusts, OEICs and other UCITs funds
- unauthorised unit trusts that do not invest in residential property
- authorised UK investment trusts
- unitised insurance funds (including those from the EU insurers)
- deposits and deposit interest
- commercial property (which may be funded by a mortgage)
- ground rents
- traded endowment policies
- gold bullion
- some tangible movable property whose value does not exceed £6,000.
Structure
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.
Regulation
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. How could this benefit you?
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.
Are there any caveats?
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. |
