A SIPP is a personal pension scheme that provides you with greater freedom to invest your pension funds in an extensive range of investments and make changes whenever you need to.

How a SIPP works

A SIPP is a ‘wrapper’ that provides for tax-efficient retirement savings. It aims to provide you with a source of income in later life. Contributions, transfer of existing pensions and borrowing are all ways of funding the SIPP to invest and build a retirement fund. You have the power and freedom to invest the pension fund across a wide range of asset classes choosing when to acquire or dispose of them. The size of the pension fund available in retirement will depend on the investment returns achieved. The tax rules are geared towards encouraging provision of benefits between the normal pension age of 55 and 75.

What you can invest in

You can choose to invest your pension fund into a wide range of assets. Heritage Pensions will typically allow ‘standard’ investments as defined by the FCA, including:

  • commercial property;
  • quoted stocks and shares;
  • fixed interest securities, loan notes and gilts;
  • depositary interests;
  • investment trust shares and exchange traded funds;
  • collective investment schemes;
  • bank deposits.

Heritage Pensions is not authorised to provide investment advice and recommends advice is sought from an appropriately qualified and authorised independent financial adviser.

Drawing benefits

The money you’ll get from your SIPP depends on:

  • how much has been paid in;
  • how investments have performed (they can go up or down);
  • how and when you decide to take your money.

You can access your pension funds from the age of 55. You don’t have to stop work when you make a withdrawal. There are a number of ways you can do this:

  • Flexi-Access Drawdown – withdraw up to 25% of your pension fund as a tax-free lump sum, then draw a taxable income.
  • Uncrystallised Fund Pension Lump Sum – do not take a 25% tax-free lump sum but each time you draw down a payment, 25% of it will be tax-free.
  • Purchase an Annuity with a lump sum to provide an income.
You can choose to pass on your fund in entirety to your beneficiaries in the event of your death, either as a lump sum or as an income over time.

How to contribute

  • Regular payments (by you and your employer).
  • Single payments (by you and your employer).
  • Transfer of funds from an existing pension.
  • In specie transfers from an existing pension i.e. shares or property.
  • Borrow money to purchase certain assets.
A SIPP can raise a mortgage to assist with funding the purchase of a property to be rented out, with the rental income used to fund the repayments.

Tax benefits

A SIPP has the same tax advantages associated with all personal pensions.

  • Tax relief on contributions (within limits)

    Personal contributions into a pension fund are paid net of basic rate of tax. Your SIPP can usually reclaim the 20% basic rate tax. If you are a higher rate tax payer further tax relief can usually be reclaimed via your self-assessment return.

  • Tax relief on investment income

    Investment income other than the tax credit on UK dividends is free from UK income tax and capital gains tax.

  • Tax relief on benefits

    Up to 25% of your pension fund can usually be withdrawn as a tax-free lump sum from when you turn 55. In the event of your death, benefits paid to your beneficiaries are usually free from inheritance tax.