Self-Invested Personal Pensions

Transcription

1 A guide to COCKBURN LUCAS INDEPENDENT FINANCIAL CONSULTING Self-Invested Personal Pensions

2 Contents 1. What is a SIPP? Giving you control 2. What tax advantages does a SIPP offer? Tax relief on pension contributions What are the options for funding your SIPP? Paying money into your SIPP 4 Transferring in 4 Who can pay contributions? How can you make contributions? How much can you save? The annual allowance Using carry forward Is there any restriction on the total value that can be saved? 4. Why should you start saving now? 6. How can you invest your money in a SIPP? Investment choice Investing regularly What are your options on retirement? Complete flexibility 8 Drawdown pension Flexible drawdown Lifetime annuity Why are we recommending a SIPP with Sippcentre? Award-winning service 9 Strength and experience Why choose Cockburn Lucas Advice and professional services 10

3 1. What is a SIPP? SIPP stands for Self-Invested Personal Pension. It s a type of pension scheme that gives you the freedom to decide exactly how your retirement savings are invested. Because you manage your investments, a SIPP is effectively a do-it-yourself pension scheme. SIPPs have really grown in popularity over the last ten years as clients have become disillusioned at the lack of control and poor investment choice available from traditional, insurance company-run pensions. Giving you control SIPPs offer an entirely different approach to traditional pensions. They allow you to take control of your own pension and to keep on top of every aspect of your retirement planning. As a SIPP client, you decide how much money you pay in, where that money is invested and even how much you receive when you retire. A SIPP also offers the key benefi t of allowing you to bring all your different pensions together, so that they can be easily managed in one place. Cockburn Lucas can help you establish your Retirement strategy and also gather all information you need to open your SIPP account arranging transfers and completing the process on your behalf from start to finish with regular updates and a hassle free service plan. 2. What tax advantages does a SIPP offer? Tax relief on pension contributions When you make a contribution to a personal pension, including a SIPP, the tax man immediately adds 20% tax relief to that contribution. For example, if you contribute 8,000 into your SIPP, the Government will pay 2,000, so a total of 10,000 goes into your SIPP. 8,000 Contribution SIPP 2,000 HMRC Higher rate taxpayers can claim further tax relief through self assessment. So, if you pay 8,000 into your SIPP and the Government adds 2,000, you can also personally claim back up to a further 2,000, meaning that the 10,000 in your SIPP has only cost you 6,000. Additional (4%) rate taxpayers can benefi t from even higher rates of tax relief. 3

4 If your employer pays money into your SIPP, you generally won t be subject to either Income Tax or National Insurance on the contributions. Your employer should also receive tax relief on the contributions it pays to your SIPP. The table below shows you the tax benefi ts of paying a contribution to your SIPP. Amount you pay Government adds (20%) Total invested in your SIPP Higher rate tax payers can claim back a further Effective cost for higher rate tax payers , , , ,160 8,000 2,000 10,000 2,000 6,000 16,000 4,000 20,000 4,000 12,000 40,000 10,000 0,000 10,000 30,000 You also benefi t from tax relief on the investments held in your SIPP. You won t have to pay Capital Gains Tax on any investment growth and there is no Income Tax to pay on dividends or other income received from your SIPP investments. In common with other pensions, SIPPs also offer tax benefi ts when you choose to draw a pension. When you make the decision to take money from your SIPP, up to 2% of your pension fund can be paid as a tax-free lump sum. 3. What are the options for funding your SIPP? Paying money into your SIPP There are two ways in which money can be paid into your SIPP. You can transfer money from your existing pension schemes into your SIPP. You and/or your employer can also choose to add to your pension by paying contributions to your SIPP. Transferring in With a SIPP you can choose to consolidate all your existing pension arrangements into one manageable pension scheme. If you have several occupational schemes or personal pensions, you can transfer each of these into a SIPP. Your current pension provider may charge you for transferring out, so make sure you re aware of any charges involved. Making a transfer is usually a simple process. Typically, you complete a transfer form, send it to your SIPP provider and they take care of the rest it really can be that simple. It may not always be in your interests to transfer benefi ts from an existing pension arrangement to a SIPP, especially if the existing scheme is a fi nal salary scheme or offers guarantees or bonuses which would be lost on transfer. If you are in any doubt, you should seek advice from a suitably qualifi ed financial adviser. Cockburn Lucas will aim to provide professional advice on whether a transfer of existing benefits is in your interests and provide a retirement report in this regard once we have met and established your goals and objectives. 4

5 Who can pay contributions? Contributions can be paid by you or they can be paid by another person on your behalf and treated as your personal contributions for tax purposes. If you are employed, your employer can also pay contributions into your SIPP. Once your SIPP has been set up, you will be able to pay monthly contributions of any amount you like. You should be able to increase or decrease this amount at any time without penalty. You can also pay single contributions whenever you like (subject to annual tax allowance). How can you make contributions? You will need to check that your SIPP provider allows you to make contributions in a way that suits you. For example, Sippcentre allows you to set up regular contributions, while a single contribution can be paid by cheque. How much can you save? In each tax year, you can get tax relief on contributions paid by you, or on your behalf, up to 100% of your UK earnings or 0,000, whichever is lower. If you have no UK earnings, or your UK earnings are less than 3,600 a year, you can still pay contributions up to 3,600 (gross) and receive tax relief. Any contributions from your employer do not count against this tax relief limit. The annual allowance HMRC limits the total contributions (personal and employer) that will attract tax relief each tax year. The annual allowance is 0,000 for 2013/14 and will reduce to 40,000 for 2014/1 and onwards. If you pay more than this to your SIPP and cannot carry forward suffi cient unused allowances from earlier tax years, then you may face a tax charge. Using carry forward If your contributions in a tax year exceed the annual allowance, you may be able to carry forward any annual allowance that you didn t use in the previous three tax years. Carry forward is subject to a maximum of 0,000 for each of the previous three tax years, and the amount you can carry forward is reduced by the amount of annual allowance used up during those tax years. Is there any restriction on the total value that can be saved? There is a limit on the value of retirement benefi ts that you can build up in pension schemes before tax penalties apply. The limit is called the lifetime allowance. The Government has set the standard lifetime allowance at 1. million for 2013/14 and reducing it to 1.2 million from 6 April Once you have used up your lifetime allowance, any further benefi ts paid will normally be subject to a lifetime allowance charge of either 2% (if you leave the excess funds in the pension) or % (if you take the excess out of your pension as a lump sum).

6 4. Why should you start saving now? If saving into a SIPP is the right pension choice for you, the sooner you start, the more your pension is likely to be worth. To illustrate the point, consider the example of a 30 year-old, paying 200 per month into a SIPP. Assuming 7% growth, she could end up with a pension fund of 23,000 by age per month 23, If she waited until she was 4 to start the same payments of 200 per month, the pension fund could only be worth 73,000 at age 60. That s only 29% of the amount she would have had if payments had started 1 years earlier. 200 per month 73,

7 . How can you invest your money in a SIPP? Investment choice SIPP providers usually offer a huge choice of investments. This table shows you just how broad the SIPP investment range is, when compared to a typical personal/stakeholder pension. Sippcentre SIPP v PP Funds & Shares Service investment options More than 7,000 unit trusts and OEICs Exchange Traded Funds Exchange Traded Commodities Corporate bonds Government bonds Investment trusts Covered warrants Shares (listed on the LSE and 2 of the world s leading stock markets)*** Permanent Interest Bearing Shares (PIBS)** Warrants Covered warrants SIPP PP Please remember that the value of investments can go down as well as up, and you may not get back your original investment. Investing regularly The price at which you buy investments can vary signifi cantly, especially when stock markets are volatile. Regular investing allows you to smooth out the impact of short term movements in the price of an investment, or range of investments, and avoids you having to anticipate market movements. Regular investing can also be a great way to save monthly and build up your pension pot if you don t have a lump sum to invest. Sippcentre s regular investment service allows you to invest every month in a wide range of investment opportunities (at nil cost), including the FTSE 30, over 2,100 funds in the Sippcentre Funds Universe, selected investment trusts, Exchange Traded Funds (ETFs) and Exchange Traded Commodities (ETCs). 7

8 6. What are your options on retirement? With a SIPP, unlike some pension schemes, you are not tied to taking benefi ts at an age determined many years earlier. You are free to choose when you want to start taking benefi ts at any age from. Complete fl exibility When you take benefi ts, you will typically be able to receive a tax-free lump sum of up to 2% of the value of your SIPP. You can take your lump sum whilst you re still working, and then decide whether or not you want to draw an income, how much you want to receive, and when you want to take that income. Once you ve made these choices, you re not stuck with them. If you decide you want to stop, start or change the level of your income, you have complete flexibility to do so (within limits set by the Government) without paying for the change. Once the amount of your tax-free lump sum payment has been agreed, the remaining fund can be used to provide you with a pension in one of three ways: Drawdown pension Flexible drawdown Lifetime annuity Choosing the right strategy to meet your retirement planning is crucial so let us guide you through the often complex issues surrounding pension planning with a simple jargon free approach to your planning and pension needs. Drawdown pension Drawdown pension, also known as capped drawdown allows your SIPP to remain invested whilst you draw an income from the fund, up to a maximum level set by HMRC. There is no minimum level of income, so you can choose not to take any pension, if you wish. Choosing a drawdown pension through a SIPP allows you to take your pension at a frequency which suits you. For example, a Sippcentre SIPP allows you to take a regular monthly, quarterly, half yearly or annual income. With Sippcentre, you can also take one-off pension payments as and when required. If you opt for a drawdown pension you can still choose to buy a lifetime annuity at any time. Drawdown pension is typically seen as a riskier option than buying an annuity, because your SIPP remains subject to rises and falls in the investment market. If the investments you choose perform poorly, or you take an income close to the maximum allowed by the Government, the level of pension you can draw from the SIPP may fall in the future. 8

9 Flexible drawdown Flexible drawdown is very similar to drawdown pension, but it allows you (if you meet certain conditions) to draw funds from your SIPP without any annual limits. You can withdraw all of the funds from your SIPP in one go if you wish. Alternatively, you can opt for a regular income over and above the capped drawdown limits, or simply draw one-off amounts to suit your circumstances. Flexible drawdown is available if you are able to meet a Minimum Income Requirement (MIR). To do this you must have secure pension income of at least 20,000 per annum. Income from state pensions and lifetime annuities qualifi es for the MIR, but income from drawdown pensions and non pension investments does not. If you opt for fl exible drawdown you need to take care not to make a contribution to any pension scheme (or accrue benefi ts in a fi nal salary scheme). If you do this, you may incur signifi cant tax charges. Lifetime annuity A lifetime annuity provides you with a regular, taxable, income that is guaranteed to last for life. Buying a lifetime annuity involves passing the value of your SIPP to an insurance company of your choice. The annuity you receive will depend on the value of your fund, annuity rates at the date of purchasing the annuity, and the type of annuity you choose. If you buy an annuity, you usually won t have any further involvement with the investment of your pension fund. Buying an annuity may be the right option if security of income is an important issue. 7. Why are we recommending a SIPP with Sippcentre? Award-winning service Sippcentre s full online functionality allows you to personally monitor your pension s progress from your own computer, 24 hours a day, 7 days a week. We will agree an investment strategy with you and manage your SIPP investments. The quality of the service provided by Sippcentre is reflected in the number of awards they win year after year. Last year they picked up the Investor s Chronicle Best Full SIPP Provider award and the Moneywise Best Comprehensive SIPP Provider award. Strength and experience This combination of fi nancial strength and unrivalled experience in the SIPP market continues to be a key factor in many of our clients decisions to use Sippcentre. Please note that this information is based on current legislation, HMRC guidance and tax rates which may change in the future. 9

10 8. Why choose Cockburn Lucas? Established in 1997 Cockburn Lucas is one of the East Midlands premier retirement and investment specialists having helped countless clients achieve their retirement planning goals with a range of experienced and qualified financial advisors who are waiting to meet and offer their expertise. We pride ourselves on relationships and offer bespoke and tailored advice to meet your individual retirement needs. Advice and professional services Cockburn Lucas will provide all advice in writing and carry extensive Professional indemnity insurance to ensure you can rely on the advice we provide and to offer you the security of our Regulated status as Retirement specialists. Whether your looking to buy a range of Investment funds or make more complex decision such as buying a commercial property or other specialist investments we can help. For more information please visit - Call or enquiries@cockburnlucas.co.uk Cockburn Lucas Independent Financial Consulting Ltd Registered in England & Wales. Registered No Registered Address: Holland House 4 Loughborough Road West Bridgford Nottingham NG2 7LA Authorised and regulated by the Financial Conduct Authority The contents of this document do not constitute advice and should not be taken as a recommendation to purchase or invest in any financial product. The value of a market investment can go down as well as up and you may not get back the full amount, particularly in the short term. Before taking any decisions, we suggest you seek advice from a qualified financial adviser enquiries@cockburnlucas.co.uk