Advanced Pensions & Simplification

In recent years the pensions industry has become more advanced in terms of the flexibility of investments available and the structure of the actual pension arrangements.

It is an area of constant change and you should consult us regularly to make preparations for a secure and enjoyable retirement.

Self Invested Personal Pensions (SIPPs)
A Self Invested Personal Pension (SIPP) is a tax-efficient wrapper within which a wide range of investments can be held. A new SIPP must appoint a scheme administrator, usually the recognised product provider. SIPPs have the same tax benefits and regulations as conventional personal pension plans but you and / or your advisers have control over the investment choice – each SIPP is unique to the individual. Otherwise, it operates in the same way as a conventional personal pension in respect of contributions and eligibility, for Her Majesty’s Revenue & Customs (HMRC) purposes.

The complex nature of a SIPP means that it is not suitable for all investors. Often, the benefits of ‘self investment’ are only advantageous to people with very large funds and / or investors with some level of sophistication when it comes to investment decisions. Often, there are additional charges for arranging and dealing within a SIPP and these charges would erode smaller funds quickly.

The benefits of using a SIPP include being able to invest in:

  • Stocks and shares listed or dealt on an Inland Revenue recognised stock exchange, including AIM
  • Stock exchanges that are not recognised by HMRC, e.g. OFEX.
  • Unit trusts, open ended investment companies (OEICs)
  • Warrants, covered warrants
  • Government stock and fixed interest stock
  • Unquoted shares
  • Commercial property & land
  • Property funds
  • We will be able to provide more details and make a recommendation based on your own circumstances.

    Pensions Simplification
    ‘A’ Day (the Appointed day) arrived on 6th April 2006 and brought with it sweeping and radical changes in relation to pension legislation.

    This has created a single universal regime that replaced the previous eight tax regimes and the changes affect all savers in occupational and personal pension schemes, employers and financial advisers.

    Pension simplification introduced two new controls, the pension Lifetime Allowance (LA) and pension Annual Allowance (AA).

    From April 2006, there is now just one set of tax rules for all types of pension, with an individual LA of £1million (2017/2018) and an individual AA of £40,000 (2017/2018). Most individuals are able to fund up to these limits with the possibility to also carrying forward unused AA from the previous 3 years.

    High earners with income in excess of £110,000 p.a. may have a reduced annual allowance of £10,000 under the tapered annual allowance rules. Individuals who have already flexibly accessed part of a pension scheme will only have an AA of £4,000.

    Exceeding either the LA or the AA will simply trigger a tax charge.

    Other changes included:

  • Early retirement age available from age 55
  • Full concurrency (i.e. being able to pay into any array of plans you wish), subject to the annual allowance and potential for carry forward
  • Wide investment flexibility
  • Up to 25% Tax Free Cash
  • The ability to commute ‘small’ funds as a one off lump sum as opposed to having to draw a regular income from age 55 (subject to part of the fund being taxed)
  • Flexible options at retirement when deciding to take benefits such as Flexi-access Drawdown
  • No need to secure benefits at age 75 via an annuity
  • In addition another raft of changes introduced in April 2016 also gives individuals further and greater flexibility to access their pension savings from age 55.

    The changes also include:

  • To increase the flexibility of the drawdown rules by removing the maximum ‘cap’ on withdrawal and minimum income requirements for all new drawdown funds from 6 April 2015;
  • To enable those with ‘capped’ drawdown to convert to a new Flexi-access Drawdown fund once arranged with their scheme
  • To enable pension schemes to make payments directly from pension savings with 25 per cent taken tax-free, known as the Uncrystallised Fund Pension Lump Sum (UFPLS) option
  • To remove restrictions on lifetime annuity payments;
  • To ensure that individuals do not exploit the new system to gain unintended tax advantages by introducing a reduced money purchase annual allowance (£4,000 2017/2018) for money purchase savings where the individual has flexibly accessed their savings; and,
  • To increase the maximum value and scope of trivial commutation lump sum death benefits.
  • Pensions are a long term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change therefore the tax treatment of pension benefits can and may change in the future.

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