What are SIPPs?
SIPP stands for self-invested personal pension and is a specific type of individual personal pension scheme.
SIPPs operate similarly to a conventional Personal Pension Plan, but the NSS Solution SIPP member is involved as a trustee, and this permits the maximum control possible over the investment of funds and benefit flexibility and timing. As with any Registered Pension Scheme the SIPP funds are not subject to Income Tax on investment income nor to Capital Gains Tax on realised profits.
How self-invested personal pension schemes work
A SIPP is open to both employees and the self-employed and can benefit from tax relief on contributions at the basic and higher rate of tax. Unlike other personal pension schemes a SIPP gives a member more control over when and where the fund is invested. This feature is similar to what is offered by a SSAS, (see below) but the SIPP is a single member scheme and there are some different rules governing investments. A SIPP can accept transfers from other types of registered pension schemes.
Members may either choose to make investment decisions personally, or appoint an authorised investment manager or adviser of their choice from time to time.
As with other pensions, the member can choose to take their retirement fund at any age from 55 onwards and may take a tax-free lump sum equivalent to 25% of the total of their share of the fund immediately. The remainder may then be taken flexibly without limits, subject to personal income tax rates.
The benefits of a SIPP
The most obvious advantage of the SIPP relates to the wide range of investment options available compared with similar products and the flexibility. While a personal pension will usually be invested in one of a range of insurance company funds, or in fixed deposits, a SIPP can invest in a wide range of investments which are exempt from capital gains tax, including equities, futures and options, unit and investment trusts, commercial property, derivatives and gold bullion. Certain investments, including residential property, are permitted but lead to tax penalties being levied by HMRC and are usually not considered.
For those who are employers, and in particular for company directors, an alternative option is a SSAS. See below.
What is a SSAS?
A SSAS stands for “small self-administered scheme” and are particularly appropriate for the pension interests of entrepreneurs, business partners, family groups, senior executives, directors, and other high net worth individuals.. For more information see what are SSAS pensions?