(My Original Blog Post:
http://ping.fm/yGsMD)
Transferring your pensions to a SIPP
If you would like to have more control over your own pension fund and be able to make investment decisions yourself with the option of our professional help, a
Self-Invested Personal Pension (SIPP) could be the
retirement planning solution to discuss with us.
Many SIPP providers will now permit you to set up a lump sum transfer contribution from another pension with as little as £5,000, and while most traditional pensions limit investment choice to a short list of funds, normally run by the pension company’s own fund managers, a
SIPP enables you to follow a more diverse investment approach.
A SIPP will typically accept most types of pension, including:
- Stakeholder Pension Plans
- Personal Pensions Plans
- Retirement Annuity Contracts
- Other SIPPs
- Executive Pension Plans (EPPs)
- Free Standing Additional Voluntary Contribution Plans (FSAVCs)
- Most Paid Up Occupational Money Purchase Plans
You can typically choose from thousands of funds run by top managers as well as pick individual shares, bonds, gilts, unit trusts, investment trusts, exchange traded funds, cash and commercial property (but not private property). Also, you have more control over moving your money to another investment institution, rather than being tied if a fund under-performs.
Investing in commercial property could be a particularly useful facility for owners of small businesses, who can buy premises through their pension funds. There are tax advantages, including no capital gains tax to pay, in using the fund to buy commercial property. The rental income is received tax-free by the fund and when the property is sold, which must be before the pension is drawn.
If you own a business and decide to use the property assets as part of your retirement planning, you would pay rent directly into your own pension fund rather than to a third party, usually an insurance company.
Ordinarily, a business property will, assuming that its value increases, generate a tax liability for the shareholders or partners. Unless, that is, you sell the property to your SIPP.
Before transferring to a SIPP it is important to check whether the benefits, such as your tax-free cash entitlement, are comparable with those offered by your existing pension. Make sure, too, that you are aware of any penalties you could be charged or any bonuses or guarantees you may lose.
If you have had an annual income of £130,000 or more since April 2007 and make regular contributions to a pension, changes announced in the 2009 Budget could affect you. Switching regular contributions to a new pension may mean future regular contributions are subject to a £20,000 limit.
You cannot draw on a SIPP pension before age 55 and you’ll need to be mindful of the fact that you’ll need to spend time managing your investments. Where investment is made in commercial property, you may also have periods without rental income, and in some cases, the pension fund may need to sell on the property when the market is not at its strongest. Because there may be many transactions moving investments around, the administrative costs are higher than those of a normal pension fund.
The value of your SIPP when you draw benefits cannot be guaranteed as it will depend on investment performance. The value of fund units can go down as well as up and investment growth is not guaranteed. The tax benefits and governing rules of SIPPs may change in the future. The level of pension benefits payable cannot be guaranteed as they will depend on interest rates when you start taking your benefits. The value of your SIPP may be less than you expected if you stop or reduce contributions, or if you take your pension earlier than you had planned.
