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SIPP Pension

By: EconomyWatch Date: 22 September 2009

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A SIPP Pension (Self Invested Personal Pension) scheme offers individuals greater control over how their pension cash is used and provides greater flexibility in investment. It is an alternative to contribution-based personal pension plans used by most people. SIPPs have the potential for bigger returns on investment, if used properly, and have advantages over the conventional pension schemes.

SIPP Pension: Some key features

Some key features of SIPP Pension are:

· To invest and save to provide an income after retirement by taking advantage of tax privileges.

· The ability to transfer existing accumulated pension funds and rights.

· Flexibility in making regular or occasional contributions to the pension fund. There is no commitment for contribution and no penalties to cease the contributions.

· The ability to make one’s own investment decisions with the aid of a registered financial advisor.

· The ability to invest in a number of investment options, including commercial properties.

· The flexibility to provide one and his/her spouse/partner with income during life after employment.

· The options of taking a tax free pension in exchange of reduced pension income.

· Flexibility of taking one’s pension benefits in stages and purchasing lifetime annuity.

Advantages of SIPP Pension

A SIPP pension scheme can offer an individual a number of advantages, such as:

· A SIPP plan offers tax relief. This means that the government pays a tax rebate into a pension plan, according to the cash amount that goes into it. The tax rebate is adjusted with the highest rate of tax paid by the individual.

· One remains in complete control of his/her investment portfolio.

· Commercial property can be used as an investment.

· A lump sum, up to 25% of the pension fund, can be drawn at the age of 55.

· Investments are free from capital gains tax.

SIPP pension is not suited for everyone. To operate the SIPP pension schemes, one should have sound knowledge of different financial instruments, although he/she can appoint an investment manager to take care of his/her pension investments. There are also some costs associated in setting up a SIPP fund. Mismanagement of the costs involved can become a poor investment option. There are the risks of decrease in investment value over time and other market regulations.

The most important thing to remember is that the range of available investments depends largely on the choice of the SIPP pension provider. Anyone considering an SIPP pension scheme for his/her retirement should take the advice of a financial advisor. While SIPPs have the potential to maximize ones investment returns and minimize taxes, it is prudent to have sound market knowledge and money management skills.