Perspectives

07
CHOICe & COntrOl
Over yOur retIrement
plannInG
Advances in medicine and
improved living standards
mean we are now living
longer than ever before.
According to new Scientist
magazine, half the people
who have ever reached the
age of 65 – in the entire
history of mankind – are
alive today. now, estimates
of life expectancy suggest
that the average female
born today will live to a
staggering 91 years. For
many of us, this raises
the question ‘will I have
enough money to enjoy my
retirement?’
it’s no surprise that we need to save more for
retirement. Workplace schemes are under
increasing pressure and many question the
government’s ability to fund the state pension,
especially when you consider the parlous
state of the public purse. To encourage us to
save more, the government is to introduce
the ‘National Employment Savings Trust’
(NEST) in 2012. In essence this would see all
eligible workers not already contributing to
a workplace scheme automatically enrolled
into either the existing workplace scheme or
NEST itself. While the scheme is intended to
be simple and inexpensive, the structure so far
appears quite complicated and information is
relatively scarce.
So for those of us wanting to save more, what
are the alternatives? For those wishing to have a
high degree of control and flexibility, a personal
pension might be the answer. In a recent survey
of 345 self-employed and small business owners
conducted by Ashcourt Rowan, this was the
most popular option, yet less than 5% of those
surveyed held a Self-invested Personal Pension,
also known as a SIPP.
Introduced in 1989 by Nigel Lawson; the then
Chancellor of the Exchequer; SIPPs are a
form of personal pension designed to allow
an investor to build up a pension fund by
making their own investment decisions. For
many years these vehicles were exclusive to
the wealthy due to high minimum investment
levels and ongoing charges, but the landscape
for SIPPs is now vastly changed and it is quite
common to come across SIPPs that do not levy
set-up fees or annual administration charges
and have no minimum contribution level.
As with all other pension types, SIPPs are
essentially free from income, capital gains and
inheritance taxes. HM Revenue & Customs
automatically adds 20% to any eligible
personal contributions made (equivalent to
basic rate income tax) while many higher rate
taxpayers can reclaim a further 20% through
their self-assessment returns. Contribution
levels are the same as other pension types too,
meaning that you can pay up to 100% of your
gross annual relevant earnings into a SIPP
(subject to a maximum annual allowance of
£255,000 for the 2010/11 tax year).
One clear difference with a SIPP however,
is the level of choice over how to take your
retirement income. A SIPP makes it easy to
defer buying an annuity as you can leave your
pension invested and simply ‘draw down’ an
income from it.
There are a wide range of SIPPs available
to investors – but the investments available
within a SIPP can be even broader, with some
allowing investment in UK and international
equities, gilts, corporate bonds, commercial
property and even gold bullion.
If you think that a SIPP sounds like the right
choice for you, make sure you speak to your
financial adviser first. Doing so will determine
if alternative pensions (such as stakeholder
schemes) are more appropriate for your needs
and will ensure that you get the best deal
within the marketplace.
The value of investments may go down as well as up and you may not get back the full amount
invested. Past performance is not a guide to future performance. Information concerning taxation
treatment is based on our understanding of current law and HMRC practice. Levels and bases of,
and reliefs from taxation are subject to change.