SIPP stands for Self Invested Personal Pension. This is a personal pension that is UK registered. It boasts much more flexibility than a traditional UK pension because you benefit from a much wider choice of investment.
You also have much more control over your investment decisions as well. This type of pension is available for any individual who is a current resident in the UK or was a UK resident five years prior to the scheme being set up.
So, if you have moved to the U.S. from the UK, as many people do today, this could be significant to you.
There are many benefits to be gained by opting for a SIPP. Let’s look at a few of these in further detail…
- If you opt for a SIPP you are going to benefit from the broadest possible selection of investments. This allows you to pick funds from across the whole market. This encompasses everything from commercial property, to traded endowment policies, to regulated investment trusts, to unit trusts, to gold bullion, to stocks and shares.
- The tax benefits are monumental. You will automatically receive a basic rate of tax based on your contributions. There will be no capital gain or income tax on your investment returns. You can claim back more tax relief if you are a higher rate payer. There are tax breaks when retirement is reached. And, you receive tax relief even if you don’t pay it.
- As touched upon in the introduction, this type of pension offers a much greater level of flexibility in regards to investment. This means that you will not be required to alter your contract should you want to switch investments. For instance, say you want to decrease or increase your funds to a lower or higher risk you can do this without changing your contract.
- In addition to this, once you actually retire you will have the possibility of drawing a pension from either a percentage or the entirety of your SIPP fund. After you have drawn out this tax-free lump sum you have the opportunity to buy an annuity along with the rest or you can ensure it is kept invested in a drawdown. Of course, you can sell an annuity at a later date if you wish to.
A lot of individuals get confused between a SIPP and a QROPS. The latter stands for Qualifying Recognised Overseas Pension Scheme. This is a non-UK pension scheme. You essentially embark on a UK pension transfer. It is ideal for those who are living outside of the UK or plan on retiring abroad.
A SIPP can also be for expatriates but is more suited to those that have intentions of returning to the UK in the future. Some key differences include the fact that SIPPS are UK tax relieved whereas a QROPS is not. A SIPP is subjected to a lifetime allowance on drawdown, a QROPS is not.
A SIPP is one hundred percent based on the Government Actuarial Department whereas a QROPS depends on local rules.