Deep Singh

Hello.

Anybody an expert on SIPPS?

When you reach 55 and retire, lets say you have a whole load of stuff in there, cash, equities, commercial property. You can take up to 25% as cash right?

How about the other 75%? You can never sell that? You have to buy an annuity right? The annuity will pay you an income for life, but say if you die at 60, what happens to the SIPPS?

Does it go to your children? If so, do they have to keep it as a SIPPS aswell or they can break it up and sell it?

Thanks

EddScott

A SIPP is a pension which allows far greater scope of investment. I don't believe you can take any money from the pension if its locked up in commercial property - you'd have to sell the property in order to realise the cash in order to provide you with any money.

Least that seems logical. SIPPs and commerical property is not something we've dont alot of so I don't know the full deal with them.

When you decide to take your funds as a pension you have choices. You can buy an annuity and if you choose too you can take tax free cash (don't forget the age at which you can take your TFC is going from 50 to 55 next year) and with the rest buy an annuity. The annuity can be setup to provide a gaurantee of 5 or 10 years to provide income to dependents if you die. You can also have spouses pension of up to 100%

Every time you make a choice that makes the provider liable to pay the most money your actual in your hand money reduces - its also taxable as income at your highest rate.

You can choose to take whats called income drawdown or USP Unsecured Pension. This allows you to take your TFC and either take nill income or upto maximum allowable (nearly always more than your standard annuity but theres a catch). The money remains in invested so still has the potential to go up or down. Also taking maximum income year on year means that the pension is likely to run out before you die. The plus side though is that you don't have to take the income if you don't need (if you still work and pay tax) and if its well invested it could still increase (your TFC won't so you won't get more than your 25%)

If you take income drawdown and you die the amount of money that wasn't in drawdown (assuming you only took partial drawdown) will be treated like a normal pension fund and be paid to your estate. The amount in drawdown, your spouse has some choices - she can keep taking the income as you were, she can have the income rebased on her life (could be more could be less) she can buy an annuity (no TFC) or she can have the money minus a 35% tax charge.

I'm not sure how it works for the children. Some schemes that allow a number of members of the same family in the scheme they all inherit an amount of the fund. I'm not sure if the children can have annuities paid to them, continue with the unsecured pension or the fund is paid less the 35% to the estate.

If your in income drawdown at age 75 you either buy an annuity or go into whats called ASP Alternatively Secured Pension. I'm not 100% on the rules regarding ASP.

Hope that helps

Deep Singh

Thanks, had to read that a few times to try and understand it (intellect issue on my part, not your explanation)

I keep thinking I should have a SIPP because of tax advantages/flexibility but in summary

1) Though I will get tax relief on contributions, income is all taxable at my highest rate

2) When I retire I have to buy an annuity (with at least 75% of it), iif the markets are poor at the time i could take a bit hit

3) The annuity will give me an income but then leave nothing at the end (ie to pass onto my kids)

4) Anything I put in is untouchable until 55, so I could miss out out on other investment opportunities if a significant proportion of my income goes into it.

I know property is a dirty word at the moment, but it would seem better to invest in property that will give an income, I can sell at anytime and pass onto my kids either when I'm still alive or dead.
Tax (CGT and IT) will be the big issue, but perhaps with planning, not too bad.

Edd,is the above a fair summary?

Many thanks for your expert advice

EddScott

1) You get relief at your highest rate on the contributions but when you take your income it will be at your highest rate. The biggest benefit here is if your a 40% payer now you get 40% relief but when you take your pension you may only be a 20% payer.

2) Annuity rates are poor at the moment. If where your pension is invested has suffered in poor market conditions then your "pot" of money will be less obviously. However, if you were to choose USP you have more control over your income and you have the potential for growth as the money remains invested (also the potential for falls)

3) If its on your life only it dies with you. If its got a spouse clause it will pay an amount to her, if its got guarantees it will be to dependents for the length of that guarantee. However, even with a guarantee of 10 years if you die in year 11 it dies with you. The guarantee is from the start of the annuity. If you have USP there are more choices as per my first post.

4) Depends what investment opportunities you means - you could use a SIPP to fund these investments but we are then talking increasing the risk to your pension fund.

You don't need to go into a SIPP if your going to be using everyday vanila funds. The FSA is getting hot and sweaty over the suitabilty of transfering into SIPPs (as they are usually expensive) from a personal pension - especially where the funds are available in lower cost pensions schemes.

You also don't need to be in a SIPP to use the income drawdown rules - although this used to be the case. You can just move from your normal PP into USP when you choose to take any benefits.

Nothing wrong with property but it has its positives and negatives just as any other investment. If the cap on multiples comes into effect when applying for a mortgage its going to have a huge effect on the property market. Some very good some very bad.

CGT and IHT can be factored into any advice to either reduce, limit or avoid depending on your personal circumstance.

I would look for a local IFA who will work on a fee basis. If you agree fees up front for pure advice your more likely to get unbiased advice rather than an attempt to stuff you into the flavour of the month provider/fund.

Deep Singh

Thanks very much Edd, very helpful indeed.

Is this what you do for a job?

EddScott

I perform various tasks for an IFA practice although I don't actually advise - I can give generic information and if I'm not sure about a particular point I'll say rather than fudge it

I'm qualified to certifcate level and I'm working on what are the J series exams. I'm working towards diploma level and eventually become as qualified as chartered financial planner. However by the time I get to that stage I imagine they'll have thought up another name for it. The trouble with this industy is that the powers that be can't leave it alone and have to fiddle at the lower level whereas its powerless to stop banks royally shafting the lot of us.

Deep Singh

Good luck with it. By the time you've got all the exams hopefully things will have recovered and people will be investing again