FINANCIAL PLANNING

What is a Self-Invested Pension Plan (SIPP)?

A SIPP, or self-invested personal pension, is the name given to a UK government-approved personal pension scheme – which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue and Customs.

Compared with more conventional retirement plans, a SIPP can offer greater investment freedom and control. In recent years, the SIPP market has evolved and is now no longer the preserve of the High Net worth investor – making them a viable option for many former UK residents/expats.

A SIPP is permitted to invest in collective investment funds, commercial property, exchange-traded funds (ETFs), cash deposits, equities, corporate bonds and government bonds. Not all SIPPs allow you to invest in the full range of allowable investments, it will be subject to the provider’s discretion.

SIPPs that hold specialist investments (such as property) may be liable to pay higher charges than schemes that hold ‘mainstream’ investments.

A SIPP will also typically afford increased flexibility at retirement.

WHEN CAN I ACCESS MY SIPP BENEFITS?

Under current legislation, you can commence drawing retirement benefits from the age of 55. It is not a requirement to have stopped work to draw benefits. From 2028 the earliest age for accessing benefits will increase to age 57.

WHAT HAPPENS TO MY SIPP IF I DIE?

One of the tax advantages of a SIPP is that it allows you to pass on your pension to your beneficiaries on your death. Your beneficiaries can normally choose to take the pension fund as a lump sum or leave it invested.

You can nominate whoever you like and in whatever proportion to receive your SIPP on your death. This could be your spouse, children or grandchildren, or you can nominate someone unrelated to you if you wish. You can also leave some, or all, of your SIPP to charity.

Any funds in your SIPP when you die can normally be passed to your heirs free of UK inheritance tax. Any withdrawals they then make will usually be tax-free if you died before you were 75 and your pension funds are ‘designated’ to your beneficiaries within two years of the date of death. If you die when 75 or older, any withdrawals will be taxed as their income.

HOW WILL MY PENSION BE PAID TO ME?

A SIPP gives you a range of options to flexibly access your pension. Essentially you can take as much or as little income as you want from your pension it is completely up to you. Income from your SIPP can be paid on a regular basis – monthly, quarterly, half-yearly or annually – or as one-off amounts.

It is essential you consider how long you will need your retirement income to last and make sure that the level of income you draw is sustainable. It is also important to understand the likely tax treatment of any payments that you receive. The amount of income you receive depends on the options that you select. These include the income continuing to be paid to a dependant in the event of your death, the income increasing each year to offset the effects of inflation and the frequency at which the income is paid.

CAN I CONTRIBUTE TO MY SIPP WHILST LIVING OVERSEAS?

As you are not UK resident you would not be able to make contributions to any new SIPP you establish. However, if you were classed as a UK tax resident within the previous five years you should still be able to make contributions of up to £3,600 gross p.a. year to any existing personal pension schemes that you had in place prior to moving overseas.

CAN A SIPP RECEIVE PENSION TRANSFERS?

A SIPP can receive transfers from both UK registered pension schemes and overseas pension schemes including Qualifying Recognised Overseas Pension Schemes (QROPS). If you have a number of pension arrangements that have accumulated over your career to date, you may wish to obtain advice on whether or not it would be appropriate/beneficial to consolidate some or all of these into a new SIPP to ensure that the transfer is conducted properly.

HOW IS MY PENSION TAXED WHEN I DRAW BENEFITS?

In most cases, you can access a cash lump sum of up to 25% of the fund value without any liability to UK tax (depending on where you are resident at the time of accessing benefits local taxes may however apply).  If you are UK resident at the point of accessing your pension, any payments over and above the tax-free amount are subject to income tax at your marginal rate.  However, where you live overseas i.e. not UK resident, depending on the terms of the Double Tax Agreement (DTA) between the UK and your country of residency, you may be entitled to receive their pension income gross (without tax deducted in the UK) and instead pay tax in your country of residence. For more information on tax planning, please click here.

For further help and advice on finding the right pensions scheme for you, please contact us .

Any tax treatment is dependent on the individual circumstances of each client and may be subject to change in future.

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