|
If
you are seeking a retirement solution that offers
access to a wide range of investments and allows you
to take a more hands-on approach to your pension portfolio,
look no further than a self-invested personal pension
(SIPP). This type of pension also enables you to keep
control of your pension fund investment once you have
retired.
How
a SIPP works
The simplest way to understand how a SIPP works is
to think of it as a flexible personal pension but
with special investment facilities. SIPPs follow the
same tax rules as personal pensions and stakeholder
schemes. You can invest between 17.5 and 40 per cent
of annual earnings each tax year, depending on your
age. For the 2003/04 tax year, the maximum earnings
on which you can base contributions are £99,000. Your
contributions benefit from full tax relief and the
fund builds up largely tax-free.
At retirement you can take up to 25% of the fund as
tax-free cash and use the rest to buy one of the many
annuities available to provide taxable lifetime income.
Alternatively, you could defer the annuity purchase
up to the age of 75 and, in the meantime, draw an
income within certain limits directly from your fund.
This is known as income drawdown.
Investment
possibilities
SIPPs offer access to a wide range of investments
in addition to the collective funds available to personal
pensions and stakeholder schemes. The choice includes
individual equities and bonds, traded endowment policies,
warrants and convertibles. You can also invest in
commercial property, including new business premises
for your firm, hotels, motels, nursing homes, guesthouses
and pubs.
An
increasing number of investors are using SIPPs in
the run-up to retirement to consolidate under one
roof the various pension plans they have accumulated
over the course of their career. Once you are 50,
you can draw a retirement income directly from your
fund, while keeping the rest of the assets fully invested.
The drawdown facility may be already built into the
SIPP, so you may not have to transfer to a separate
drawdown plan.
|
