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Friday, 23 November 2012

What Are Self Invested Personal Pensions?

By Paul Rhodes


Self Invested Personal Pensions, often abbreviated to SIPPs are a variety of personal pension that provide pension holders with a much larger level of freedom than other pensions. SIPPs provide investors the ability to pick and choose what they invest their pension contributions in or if they feel that they are not adequately knowledgable enough to make that kind of investment decision, they can arrange for a specialist wealth manager to make those decisions for them. They need to appoint a trustee who will monitor the performance of the Self Invested Personal Pension scheme.

A SIPP can accommodate a large variety of investments, including shares, bonds, cash, property, hedge funds and private equity. You are likely to pay for the wider level of choice with more expensive charges. The charges come in two types, a set up fee and an yearly administration fee. A low cost SIPP, with a smaller range of options, such as just shares, funds and cash, may not charge a set up fee and only a small, yearly fee.

In addition to the annual charge, there will be transaction charges on items such as share dealing and switching investments around. Under the rules which came into effect in April 2006, investors have much more freedom to invest money in a SIPP. They can make contributions up to 100 per cent of their earnings, with full tax relief on the total, subject to a maximum earnings limit of 245,000 in 2009/10. More can be invested but without tax relief. This replaces the less generous and more complicated earnings related allowances that used to be available.

Pension contributions can be made by the self employed, employers and employees. Before, employees in a company pension arrangement who earned more than 30,000 a year could not also contribute to a Self Invested Personal Pension, but they are able to do so now, as long as they do not exceed the limit of 100 per cent of their earnings, up to the maximum previously mentioned.

Pension holders are free to bring together a number of different pension plans under the one SIPP by transferring separate plans into a Self Invested Personal Pension. It is essential, though to to check whether any benefits would be lost if a pension is transferred and the cost of the transfer should also calculated. Many pension providers charge for the transfer, although some do not..

If you think that a Self Invested Personal Pension is for you, ask the advice of an independent financial adviser or your wealth management specialist. Apart from being trained and knowledgable in the workings of a SIPP they will also have access to the full range of products that the market has to offer and be able to help you select which scheme is best for your particular needs.




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