Self Invested Personal Pensions (SIPPs) were first introduced in 1989 and have evolved into the favoured investment vehicle for individuals seeking more control and flexibility in their retirement planning. Unlike traditional insurance company pension schemes, members are not restricted to the narrow investment funds of any one company and may invest in a wide range of permissible investments within a tax efficient wrapper. Income tax relief is allowed on personal contributions and corporation tax relief on company contributions. The fund is exempt from most forms of taxation, allowing tax efficient growth.
Who can have a SIPP?
Any individual who is resident in the UK under the age of 75 may invest in a SIPP and in certain circumstances non-UK residents who have had UK earnings in the previous five years may also be eligible. An individual may be a member of as many pension plans as they wish, contributions may be paid direct by the member, their employer and by transfer of previous pension plans.
How much may be contributed?
Contributions to a SIPP are unlimited, the only limits applicable being limits for tax relief purposes. To obtain tax relief on individual contributions, the maximum that may be paid is the greater of:
- £3,600 regardless of earnings ; or
- 100% of relevant UK earnings
HMRC set an annual limit for tax relief purposes, in the tax year 2015/16 this is £40,000. In some circumstances, carry forward of unused allowances from the previous three tax years may be possible.
Note that if you have accessed your pension using a flexible option (e.g. taken any income under Flexi Access Drawdown, or Uncrystallised Funds Pension Lump Sum (UFPLS)) then you will be subject to the reduced Money Purchase Annual Allowance of £10,000 in 2015/16, and you will not be able to use Carry Forward of unused allowances for your money purchase contributions.
What investments are permissible?
HMRC allow SIPPs to invest in a wide range of investments, permitting in theory virtually any form of asset to be held. However, care must be taken not to invest in certain assets that may incur tax charges, including residential property and other esoteric investments. Should any scheme arrange any such investments, penal tax charges will be applied.
SIPPs may borrow to acquire investments, although borrowing is limited to a maximum of 50% of the fund value. Transactions with scheme members are permissible, although any such transactions must be arranged at an arms length valuation.
Minerva SIPP will not allow the following forms of investment:
- Direct Residential Property
- Wasting Assets
- Direct or indirect investment in sporting animals
- Tangible, movable assets (art, antiques and fine wines)
- Unquoted shares
- Unregulated Collective Investment Schemes (UCIS) or their near equivalents
How benefits may be paid?
Upon drawing benefits the fund value is tested against the Standard Lifetime Allowance, (SLA) if the fund exceeds the SLA a tax charge will arise unless transitional protection applies. The SLA was introduced in April 2006 at £1.5m and has changed as follows:
- 2007/08 £1.60m
- 2008/09 £1.65m
- 2009/10 £1.75m
- 2010/11 £1.80m
- 2011/12 £1.80m
- 2012/13 £1.50m
- 2013/14 £1.50m
- 2014/15 £1.25m
- 2015/16 £1.25m
At retirement, a number of options exist for the payment of pension benefits, including:
• Pension Commencement Lump Sum - A tax free lump sum equivalent to 25% of the fund value may be paid.
• Secured Income - A Lifetime Annuity may be purchased, providing pension income for the member, this may include a spouse's benefit, allowing continuation of pension income after the member's death.
• Capped Drawdown (this option may be available if you held Capped Drawdown funds on 5th April 2015, and you now want to designate additional funds to Capped Drawdown under the same arrangement, and you have not exceeded the maximum income limits). Income may be drawn directly from the fund, allowing investments to remain, the level of income available is determined by reference to the fund value and Government Actuary Department (GAD) published rates at the time. This allows a flexible level of income as the member may vary their income from nil up to the maximum permissible in any one year. Benefit limits are assessed every three years up to age 75 and then yearly thereafter.
• Flexi Access Drawdown – allows income withdrawals without limit, subject to income tax at your marginal rate.
• Uncrystallised Funds Pension Lump Sum (UFPLS) - allows a payment, or series of payments, from your uncrystallised funds. 25% of each payment is tax free, and the balance is subject to income tax at your marginal rate.
What happens in the event of death?
If death occurs before age 75, beneficiaries have the options of:
- Lump Sum, tax free if paid within 2 years
- Income in the form of Flexi Access Drawdown, paid tax free
- Annuity purchase, income is tax free
If death occurs on or after age 75, beneficiaries have the options of:
- Lump Sum, taxed at 45% in 2015/16 tax year, although the Government proposes that in future years the rate will be at the beneficiaries marginal rate of tax
- Flexi Access Drawdown, income subject to beneficiaries marginal rate of income tax
- Annuity Purchase, income subject to beneficiaries marginal rate of income tax
What charges are applicable?
Please refer to the current charging schedule.
How is SIPP Lite different?
SIPP Lite has been designed to reflect the increase in investors using platforms or "single" investments such as passing most or all of their pension fund to a Discretionary Fund Manager (DFM) or purchasing investments via a single Investment Platform or Stockbroker Account. In these cases, the administration can be more straightforward for us, and therefore we've been able to launch SIPP Lite with an even more competitive charging structure
What if I find I need additional investment flexibility later?
SIPP Lite members can "upgrade" to the full Minerva SIPP at any time. In these cases, the annual SIPP fees will increase from the next plan anniversary to those applicable to the Minerva SIPP. An "upgrade" is not a transfer or switch of your pension benefits, as you keep the same plan. In effect, SIPP Lite is a category of membership of the Minerva SIPP.