Friday, July 12, 2013

What Are Self Invested Personal Pensions?

By Paul Rhodes


Self Invested Personal Pensions, sometimes called SIPPs are a type of personal pension that provide investors with a higher level of freedom than other more traditional pension schemes. SIPPs provide pension holders the opportunity to decide what they invest their pension in or if they feel that they are not well versed enough to make that kind of decision, they can appoint a specialist investment manager to make the decisions for them. They are required to appoint a trustee who will track the performance of the Self Invested Personal Pension.

A fully fledged SIPPs can accommodate a wide variety of investments, including shares, bonds, cash, commercial property, hedge funds and private equity. However, you are likely to pay for the wider level of choice with higher charges. The charges come in two types, a set up fee and an annual administration fee. A low-cost SIPP, with a limited range of options, such as shares, funds and cash, might not charge a set up fee and only a small, annual fee.

In addition to the annual charge, there will be transaction charges on items such as share dealing and switching investments around. Under the rules which came into effect in April 2006, investors have much more freedom to invest money in a SIPP. They can make contributions up to 100 per cent of their earnings, with full tax relief on the total, subject to a maximum earnings limit of 245,000 in 2009/10. More can be invested but without tax relief. This replaces the less generous and more complicated earnings related allowances that used to be available.

Contributions can be made by the self employed, employers and employees. Previously employees in a company pension scheme who earned more than 30,000 could not also contribute to a Self Invested Personal Pension, but they are free to do so now, provided that they do not exceed the limit of 100 per cent of their earnings, up to the previously mentioned maximum.

It is possible to bring together several different pensions under the one SIPP by transferring separate plans into a Self Invested Personal Pension. Before doping this, it is essential to check whether any benefits would be lost in the transfer of an existing pension and also the cost of the transfer should also be looked in to. Some pension providers make no charge whilst other do.

If you think that you would benefit from a Self Invested Personal Pension, ask the advice of an independent financial adviser or your wealth management specialist. Apart from being well versed in the workings of a SIPP they will also have access to the full range of schemes that the market has to offer and be able to help you choose which product is best for your individual circumstances.




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