A SIPP, or self-invested personal pension, is the name given to a UK government-approved personal pension plan that allows access to a wide range of investments.
Compared to more conventional Personal Pension Plans (PPPs), a SIPP can offer greater investment freedom and control. In recent years, the SIPP market has evolved and is now no longer the preserve of the high-net-worth investor.
A SIPP is permitted to invest in collective investment funds, UK commercial property, exchange-traded funds (ETFs), cash deposits, equities, corporate bonds and government bonds. Not all SIPPs allow you to invest in the full range of allowable investments, it will be subject to the pension provider’s discretion.
It is also important to note that not all pension providers that offer SIPPs will allow access to their products for non-UK residents. There is limited availability and your adviser can help guide you through what is available and find the most suitable arrangement accordingly.
SIPPs that hold specialist investments (such as property) may be liable to pay higher charges than schemes that hold ‘mainstream’ investments.
A SIPP will also typically afford increased flexibility at retirement such as Flexible Access Drawdown (FAD) enabling full access to pension fund values.
When can i access my SIPP benefits?
Under current legislation, you can commence drawing retirement benefits from the age of 55. It is not a requirement to have stopped work to draw benefits. From 2028 the earliest age for accessing benefits will increase to age 57.
WHAT HAPPENS TO MY SIPP IF I DIE?
One of the tax advantages of a SIPP is that it allows you to pass on your pension to your beneficiaries on your death. Your beneficiaries can normally choose to take the pension fund as a lump sum or leave it invested.
You can nominate whoever you like and in whatever proportion to receive your SIPP on your death. This could be your spouse, children or grandchildren, or you can nominate someone unrelated to you if you wish. You can also leave some, or all, of your SIPP to charity.
Currently, any funds in your SIPP when you die can normally be passed to your heirs free of UK Inheritance Tax. Any withdrawals they then make will usually be tax-free if you died before you were 75 and your pension funds are ‘designated’ to your beneficiaries within two years of the date of death. If you die when 75 or older, any withdrawals will be taxed as their income.
However, the Labour government has recently confirmed that proposals to include unused pension funds in UK inheritance tax will be introduced from April 2027.
There may be no easy solution to reduce UK IHT liability on pensions, but, again your adviser can discuss your options with you and you can agree on the most sensible strategy for your circumstances accordingly.
How will my pension be paid to me?
A SIPP gives you a range of options to flexibly access your pension. Essentially, you can take as much or as little income as you want from your pension – it’s completely up to you. Income from your SIPP can be paid on a regular basis either monthly, quarterly, half-yearly, annually, or as one-off amounts.
It’s essential that you consider how long you will need your retirement income to last, and make sure that the level of income you draw is sustainable.
It’s also important to understand the likely tax treatment of any payments that you receive. The amount of income you receive depends on the options that you select. These include the income continuing to be paid to a dependant in the event of your death, the income increasing each year to offset the effects of inflation and the frequency at which the income is paid.
Can I contribute to my self-invested personal pension whilst living overseas?
As you’re not a UK resident, you wouldn’t be able to make contributions to any new SIPP you establish. However, if you were classed as a UK tax resident within the previous five years, you should still be able to make contributions of up to £3,600 gross p.a. year to any existing personal pension schemes that you had in place prior to moving overseas.
Can a SIPP receive pension transfers?
A self-invested personal pension can receive transfers from both UK registered pension schemes and overseas pension schemes including qualifying recognised overseas pension schemes (qrops). If you have a number of pension arrangements that have accumulated over your career to date, you may wish to obtain advice on whether or not it would be appropriate/beneficial to consolidate some or all of these into a new SIPP to ensure that the transfer is conducted properly.
If you have a number of pension arrangements that have accumulated over your career to date, you should obtain financial advice on whether it would be appropriate or beneficial to consolidate some or all of these into a new SIPP to ensure that the transfer is conducted properly, and that you will benefit from changes from a new vehicle, rather than retaining the existing.
New pension plans are far more flexible than those established decades ago, offer wider investment solutions, and flexibility in terms of how benefits can be taken.
Which are all part of the consideration process.
How is my pension taxed when i draw benefits?
In most cases, you can access a cash lump sum of up to 25% of the fund value without any liability to UK tax (depending on where you are resident at the time of accessing benefits as local taxes may apply).
If you are UK resident at the point of accessing your pension, any payments over and above the tax-free amount are subject to income tax at your marginal rate.
However, where you live overseas i.e. not UK resident, the terms of the Double Tax Agreement (DTA) between the UK and your country of residency could mean lower levels of tax liability. In certain locations you may be entitled to receive their pension income gross (without tax deducted in the UK) and instead pay tax in your country of residence. This is a complicated matter and tax driven financial planning advice is essential to make sure your pension arrangements are established in the right manner for your circumstances.
For more information on tax planning, please click here.
For further help and advice on finding the right pension plan for you, please contact us .
Please note:
Any tax treatment is dependent on the individual circumstances of each client and may be subject to change in future.
This article aims to provide information. However, this is not intended to form professional advice, nor should it be relied upon as such and before taking any particular action, specific and personal advice should be obtained. All levels and basis of, and relief from taxation illustrated here are subject to change. You should seek professional advice before making any financial decisions.
