Investing for retirement

The flexibility to decide on your pension investments at all times

If you want to be more in control of your own pension fund and have the flexibility to make your own investment decisions for retirement, a Self-Invested Personal Pension (SIPP) could be one option to discuss with us. Although SIPPs are more sophisticated vehicles for accumulating retirement funds, they are no longer the elite product they once were.

A SIPP is a tax-efficient wrapper in which you can select your own investments from a wide variety of options. These may include stocks and shares, bonds, gilts, unit trusts, investment trusts and even commercial property (but not private property). This diversity provides you with the flexibility to spread your money across a whole range of different types of investments. Depending on your own personal objectives and requirements, you have the flexibility to change or add new investments whenever you choose.

Using a SIPP to invest in a commercial property may be a particularly useful vehicle if you are the owner of a small business, enabling you to purchase the premises through your pension fund. One tax advantage of using your SIPP to purchase a commercial property is the receipt of tax-free income generated from the rents. Another is that, at the point you sell the property, which must be before your pension is drawn and under current taxation rules, there would be no capital gains tax to pay on the proceeds.

Some of the key attractions of commercial property investments are:

The property, when sold, is free of capital gains tax (CGT).

There is no limit on the number of properties which can be purchased (providing funds are available).

Borrowing is allowable to assist in the purchase.

Legal costs and expenses may be payable from the SIPP (except stamp duty land tax).

Rental income is paid gross into the SIPP.

VAT may be reclaimable by the SIPP if the property is VAT registered.

The ability to buy a property from which the member can operate their business, without this being a significant outlay to the company (although the member’s business must pay a commercial rent to the SIPP).

The SIPP can purchase commercial property that the member, or their business, already owns (provided the price is at market value).

The member does not have to sell the property when they decide to draw a pension from the SIPP.

The member or their employer can use a commercial property instead of cash when making a tax relievable contribution to the SIPP.

Personal contributions into your SIPP would receive income tax relief, and in some circumstances the value of the fund may also be passed on to your beneficiaries free from inheritance tax, provided that no benefits have been drawn.

You could withdraw funds between the ages of 55 and 75 (50 and 75 before 6 April 2010) and normally take up to 25 per cent of your fund as a tax-free lump sum. The remainder is then used to provide you with a taxable income. A SIPP also allows you to choose from the full range of options at retirement, including purchasing an annuity or taking a managed income withdrawal from your fund.

If you have accumulated a number of previous pensions throughout your working life, and if appropriate, you could consider transferring these pension arrangements into your SIPP. This would mean that you then have only one company carrying out your pension administration, which could reduce the reporting and paperwork that you receive.

You need to balance the advantages of investing in a SIPP with the fact that the set-up costs and charges are likely to be more expensive than for a stakeholder or personal pension. In addition, SIPPs are unlikely to be suitable for smaller pension funds and can be complicated, making them more suitable for investors who have a high degree of investment experience and a desire to make their own decisions. It is important to be aware that it may take longer to realise the value of some SIPP assets compared to others.

The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent finance acts.