sipps

deputydog

Can somebody please tell me how sipps work and what you have to do to set it up

cheerfulcat

SIPP FAQs here and here.

HTH

Cheerfulcat

margaretclare

Hi

Very simply, they're Self-Invested Personal Pensions. Instead of leaving it to an insurance company type of pension provider where all you do is pay in money, you contact either SIPPdeal or Hargreaves Lansdown (those two seem to be the foremost SIPP providers at the moment). You still get your tax relief at whatever rate you pay - i.e. if you're paying tax at 22% you pay in £78 and the nice taxman makes it up to £100 which you can invest in funds of your choice. Have a look at this: http://www.hargreaveslansdown.co.uk/SIPP/

I went to HL because they explained it all in words of one syllable, no gobbledygook which is what puts so many people off talking about pension provision.

Margaret Clare

dunstonh

I'm in love with they hybrid SIPPs. At least one particular one anyway, a couple of the other hybrids are pretty naff.

Its really got to the point now where regular premiums go to ISAs unless tax relief, working/childrens tax credits or the need for tie in exists and single premiums (usually transfers) go to full or hybrid SIPPs with only those that want lower risk or lowest charges going to personal pensions or stakeholders. Its a bit of an irony now that the stakeholder pension is probably best used by those already in retirement planning for a boost in later years or trying to get some money out of their estate because they dont expect to make age 75.

Its not often I make sweeping statements like that. Although post A day rules have really changed the way you need to plan for retirement and not in the way that Govt intended....

With rumours now coming out that the Govt could be looking to close the tax free lump sum on pensions or at least revert it back to a commencement lump sum only (which could happen as early as next April), that could be the final straw.

EdInvestor

dunstonh wrote:

Its really got to the point now where regular premiums go to ISAs unless tax relief, working/childrens tax credits or the need for tie in exists and single premiums (usually transfers) go to full or hybrid SIPPs with only those that want lower risk or lowest charges going to personal pensions or stakeholders.

Blimey :eek:

Its not often I make sweeping statements like that.

Err no. Don't bother with personal pensions. Gosh.

Although post A day rules have really changed the way you need to plan for retirement and not in the way that Govt intended....

Are you quite sure about that?

With rumours now coming out that the Govt could be looking to close the tax free lump sum on pensions or at least revert it back to a commencement lump sum only (which could happen as early as next April), that could be the final straw.

Do you mean end the tax relief for higher-rate taxpayers?

There's no doubt this costs a lot, and what with all this pressure to "do something" about the state pension.....

....the money's got to come from somewhere.

Looks like 3bn might come from from contracted-out rebates, but that's not enough.

dunstonh

Do you mean end the tax relief for higher-rate taxpayers?

No. The 25% tax free lump sum. There have been a handful of articles suggesting that the Govt is either going to stop the ability to take the tax free lump sum at any other time other than annuity commencement or even stop it altogether.

margaretclare

dunstonh wrote:

No. The 25% tax free lump sum. There have been a handful of articles suggesting that the Govt is either going to stop the ability to take the tax free lump sum at any other time other than annuity commencement or even stop it altogether.

Ooooops. Well, I have a leaflet here entitled 'SIPP Times - Investment Times 45'. And they are explaining the concept of 'drawdown'. 'In this instance you can take up to 25% of your SIPP pot as a tax-free lump sum but....leave (the rest of it) exposed to the market'.

I had thought of leaving the whole lot of it exposed to the market and not taking the 25% until I reach 75. However, if the ability to take the tax free lump sum is threatened with being stopped, then I'll take it as soon as I can. My SIPP isn't yet set up - it still awaits the transfer of £8500 or so from the Friends Provident stakeholder. But according to the Investment Times quoted above, I can take the 25% once it's all set up, and I think I will do just that!

Margaret Clare

EdInvestor

dunstonh wrote:

No. The 25% tax free lump sum. There have been a handful of articles suggesting that the Govt is either going to stop the ability to take the tax free lump sum at any other time other than annuity commencement or even stop it altogether.

This seems a bit unlikely,however I do always feel that tax free cash lump sums are best extracted when the can be, just in case.;)

They can be reinvested into tax free ISAs if wanted - or just invested in shares, which will pay tax free dividend income anyway if you are a BRT, no need for all the wrapper palaver.

dunstonh

It seems unlikely but here is a copy of the article from money marketing 4.5.06

The Government could scrap tax-free cash over concerns that people will rush to cash in their pensions to invest in second homes and other investments, warns Informed Choice managing director Nick Bamford.

He says moves by the Government to rebrand tax-free cash as "pension commencement lump sums" could be a precursor to its abolition.


Bamford says: "Why are they calling tax-free cash a pension commencement lump sum when taking the lump sum is not dependent on the pension commencing? Is the Government expecting to take away this tax privilege? It is already getting increasingly twitchy about alternatively secured pensions giving people too much access to tax-free cash."


Scottish Life group communications director Alasdair Buchanan says: "There have always been threats over the last 15 years to scrap tax-free cash. I do not think you can guarantee that it will always be there but I think the Government would be very nervous about ditching it because of the negative reaction it would get from its voters and the civil service.
"For many people, tax-free cash is the only genuine tax incentive to lock away their money in a pension."

plus a second run on 11.05.06

Informed Choice managing director Nick Bamford fears for the future of the tax-free lump sum

The expectation of an event sometimes surpasses the happening of the event itself. This was certainly true of A-Day. After years of planning, debate, confusion and expectation, April 6 came and went.
Is A-Day going to have the kind of impact we expected or will it will be another example of those laws of unintended consequences that happen so often in the financial services world?

Now, I have to be a little careful here or Nic Cicutti may accuse me of being one of those paranoid IFAs who believe that the Government and FSA have it in for us. But if you were in Government and were thinking about removing the tax-free status of the lump sum, you might start by giving it the title "pension commencement lump sum". This is odd because under the A-Day rules, it is possible to take the lump sum without commencing a pension at all.

An unsecured pension allows a level of income between 0 and 120 per cent of the published Government Actuary's Department rates. A client who selects 0 per cent and takes his tax-free lump sum can hardly have been said to have commenced his pension.

The signs are that this is going to become a popular move. Clients will have all kinds of reasons for doing this and examples that I am currently dealing with include paying school fees for a teenager for the next five years, putting down the deposit on a house for a child still living at home (the average age of first-time buyers is 34, I am told), using the tax-free cash from a protected-rights fund to help fund the purchase of a holiday home and a very interesting proposal from one parent to fund a start-up business for their son.

We are going to have to be careful to point out to clients that one of the consequences of taking tax-free cash now might be smaller pension benefits later. However, I am confident that the people who are doing this are well aware of the risk that they are taking.

It is also still a question of confidence. Many consumers are still more confident that property investment, for example, has a headstart over pension investments.

The ability to access the pension commencement lump sum for those aged 50 without having to retire or stop work is certainly attractive for many people.

This may sound like a posh word for churning but many clients are very keep on the benefits of consolidating disparate pension arrangements and getting a proper investment plan going. No longer having to worry too much about pre-transfer tests is hopefully going to make that easier in the future.

Self-invested personal pensions continue to dominate the thinking of many clients who approach us on this subject. They like the transparency and choice that these vehicles bring.

We have taken on two clients recently who already have their own Sipps and are perfectly able to make their own investment decisions but get comfort from using us as a sounding board. They pay us simply for advice and review services and we are delighted that we do not have to implement anything for them.

As part of the evolution of the new model adviser whose product is advice, we will see more purchases conducted directly by the client, probably online.

With regard to applying for protection, wow, have you seen the forms? I reckon that whoever designed them is looking for some kind of award and, trust me, it will not be for plain English. If you are planning to complete one of the forms for a client, you may wish to ensure you know the meaning of a "choses in action".

The good news is that the notes to help you complete this form provide all the answers. The bad news is that there are four pages of notes. Do you remember when all this was called pension simplification?

EdInvestor

Gosh, there are some really bright chaps in your business Dunstonh. :rolleyes:

First the Govt renames "tax free cash" as "pension commencement lump sum".Possibly this new name better describes what the money is supposed to be for?In the light of the other change ending the need to take income, might this be a logical thing to do?

But no, this genius thinks the change might mean the Government wants to take it away.Why might the Govt want to take it away? Possibly because people are using it for purposes it's not designed for?

But they're not doing that, are they?

Erm, it seems that the genius's clients are doing that very thing.

examples that I am currently dealing with include paying school fees for a teenager for the next five years, putting down the deposit on a house for a child still living at home (the average age of first-time buyers is 34, I am told), using the tax-free cash from a protected-rights fund to help fund the purchase of a holiday home and a very interesting proposal from one parent to fund a start-up business for their son.

He's a really smart guy isn't he? Not only does he do this stuff that he thinks the Revenue probably doesn't like, he rings up the trade magazine and tells them all about it, whereupon they publish it.

Then the Mensa member goes on to say

Now, I have to be a little careful here or Nic Cicutti may accuse me of being one of those paranoid IFAs who believe that the Government and FSA have it in for us.....

You have to laugh. Is he bright enough to rearrange the words "foot" "shoot" "in" and "self" to get the correct answer, do you think?

The pity is that it's idiots like this who ruin the useful effects of liberalisation for the rest of us :mad:

Yet another reason to steer clear of pensions, an industry seriously infested by fools.

cheerfulcat

Ed, I think that you are being unduly harsh on Mr. Bamford. It has already been suggested, many times, that the tax-free cash perk only benefits people with larger pension pots, i.e. not those whom Labour wish to benefit. At least one consultation paper suggests doing away with it altogether ( I've actually spent the best part of two hours looking for that paper but can't remember which one it was - will post if I find it ).

Why might the Govt want to take it away?

Out of spite, and because they can.

Regards

Cheerfulcat