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Self Invested Personal Pensions
A commonsense way to build a pension

4 SIPPs: Whats all the fuss about? Recent awards include:

5 More about the investments Gold Standard for Individual

Pensions 2013-2016
7 For whom are SIPPs designed? Gold Standard Awards

8 What are the tax advantages?

9 What are the eligibility and Best Low-Cost

investment limits? SIPP Provider
10 What happens to a SIPP when an Investors Chronicle
investor dies?

11 How much and where to invest? Best SIPP Provider

12 What are the options at What Investment
Best SIPP Provider - Hargreaves Lansdown
retirement? 2007 - 2016 Best SIPP Provider -
Readers Award
Hargreaves Lansdown
2007 - 2016

14 Conclusion

15 Important investment notes

Gold Standard for
Retirement 2014-2016
Gold Standard Awards

Best Direct SIPP

Provider 2013, 2014
& 2016
Your Money

Best Investment
Platform 2016
Online Personal
Wealth Awards
SIPPs: A DIY investors dream pension

An estimated one million people have a SIPP There are two ways to start a SIPP:
(Self Invested Personal Pension) and there is
no sign of demand slowing. 1. New contributions (such as monthly
payments and one-off lump sums) which
The most obvious reason for their popularity attract tax relief at up to 45% depending
is in the name: self invested. They on personal circumstances.
give investors access to a huge range of
investments so they can run their pension 2. Transfers from other pensions which
themselves. For many people their pension allow investors to move away from
will be their second most valuable asset after outdated arrangements or consolidate
their house; so this freedom really matters. numerous plans under one roof.

Recent rule changes have also helped. The With an age of austerity in public spending
pension freedoms which took effect in April upon us and fewer private companies
2015 have made pensions more attractive. providing final salary pensions, individuals
will increasingly be required to make their
Investors now have total freedom over how own retirement provision. We believe SIPPs
they take their money, although a pension could be the most attractive option for many.
can still only be accessed from age 55 (57 from
2028). They can withdraw what they like, up This guide explains the pros and cons of
to 25% usually tax free and the rest taxed as SIPPs in plain English and indicates who
income. When they die, any money can also can prosper and who may be more suited to
be passed on to their beneficiaries, potentially a stakeholder or other type of pension. We
without a tax charge. hope you find it useful and if it raises any
questions please do not hesitate to contact
Technology has also been a key factor. Many our Pensions Helpdesk on 0117 980 9926.
SIPPs were launched in the 21st century, One of our specialists will be delighted to
so have been designed with the internet in assist you. Please note tax rules can change.
mind. Online tools have helped make them
attractive to people who are comfortable
making their own investment decisions.

SIPPs: Whats all the fuss about?

A SIPP works in much the same way as any

other personal or stakeholder pension, in
terms of tax benefits, contribution limits
and retirement options. An investor makes
contributions, the government adds basic-
rate tax relief and the investor can claim any
higher or additional-rate relief via their tax

The contributions are left to grow and then,

at any point from age 55 (57 from 2028), up
to 25% can usually be taken tax free with the
rest taxed as income. There are no withdrawal
limits so an investor can draw from their
pension what they like.

The main aspect in which SIPPs are generally funds from across the market. They could
superior to personal and stakeholder plans is choose a top UK smaller companies fund
in their investment choice. run by investment house A, a leading US
manager at investment house B and a top
Stakeholder pensions have low charges, fixed income manager at investment house C.
but tend to offer a limited choice of funds. Not all funds available in a SIPP will be good
Traditional personal pensions, meanwhile, investors have to look for the best. With a
tend to offer wider choice between a dozen personal pension, they would probably have
and several hundred funds but can carry to choose from the investments offered by
hefty charges, particularly on older plans. that particular pension provider. Some of the
Both types are usually run by insurance funds offered may be good, but it is unlikely
companies, which generally only offer their that all of them will be.
own funds or a limited selection from other
fund managers. The drawback is while a A good way to think of a SIPP is as a shopping
single company may have expertise in one trolley into which you can place many
area, it is unlikely this will be the case across different types of investment, including
all fund sectors. funds, shares, bonds, gilts, futures and
options, commercial property and more. The
SIPPs can offer the widest possible choice SIPP itself is merely a tax-efficient wrapper
of investments, allowing investors to pick around them.

More about the investments

Stakeholder SIPP

A personal pension usually offers a limited A SIPP offers a wide variety of different
selection of investment funds run by the investments, from a wide range of providers.
pension provider.

What are the investment options? Personal Pension SIPP

Collective Investment Funds:
Unit trusts 5 3
Investment trusts 5 3
OEICs (Open Ended Investment Companies) 5 3
Exchange Traded Funds (ETFs) 5 3
Insurance company funds and their range of 3 3
funds run by other managers
Stocks and Shares:
Individual UK equities 5 3
Overseas equities, eg US or European shares 5 3
UK Gilts 5 3
Bonds and other fixed interest securities 5 3
Futures and options 5 3
PIBS - Permanent interest bearing shares 5 3
Some of the other investments include:
Cash and deposit 3 3
Traded Endowment Plans 5 3
Commercial property and land 5 3
Loans 5 3

The value of all investments can fall as well as rise so investors could make a loss.

More about the investments

Collective investments are extremely popular Whilst waiting to make an investment

and include unit trusts, investment trusts, decision, cash can be held in a SIPP. Indeed
OEICs and insurance company funds. some SIPP investors are happy with cash in
Together they make up a range of thousands the knowledge they have obtained tax relief.
of different investment funds, offered by
hundreds of different fund managers and In summary, a SIPP facilitates investment
insurers. Some invest widely around the across a whole spectrum. Some providers
world and across different types of asset, allow any permitted investments, including
while others are more specialised, focusing commercial property, which often means
on a particular region or type of share. higher charges. Other providers offer fewer
investments, but these SIPPs tend to have
Investors can also hold individual UK and lower charges.
overseas stocks and shares, as well as UK
gilts, corporate bonds and other fixed interest Remember investments should be held for
securities. Even futures and options can be the long term as they do fall as well as rise in
included. value. This means an investor could get back
less than they invested.

For whom are SIPPs designed?

SIPPs arent for everyone. Some investors investors should ensure they will benefit
do not require the huge investment choice, from doing so, and check they will not incur
others may have adequate pension provision excessive penalties or lose guarantees or
through their employer. Flexibility and broad other valuable benefits.
investment choice are particular attractions
for those taking responsibility for and control Most pension plans are provided by insurance
of their pension. companies, which generally do not have the
best record for investment performance.
Investors starting a personal pension should There are exceptions. The most talented
look at all the options. fund managers tend to work for dedicated
investment companies, and these are where
If investment choice and flexibility are not most of the top performing funds can be
important, and contributions are going to found, although past performance is not a
be low, a stakeholder pension could be a guide to the future.
cheaper and better option than a SIPP. If
access to the best fund managers in the For investors who wish to take control of their
market is important, a low-cost SIPP may be pension arrangements, SIPPs offer access to
a better choice. Investors who want to invest the funds of specialist investment companies.
directly in commercial property or more
exotic investments may have to consider a Certain SIPPs, such as those offering
more expensive SIPP. investment in commercial property, may be
expensive, but low-cost SIPPs can represent
Investors choosing a SIPP should have the excellent value depending on the size of the
desire and confidence to take control and fund and the investments chosen. Low-cost
make investment decisions. Anyone with a SIPPs may not include investments such as
personal or stakeholder pension should in commercial property.
any case regularly review their arrangements,
although few people do. Anyone with any doubts about the suitability
of a SIPP for their personal circumstances
Transferring to a SIPP is not difficult. People should seek personal advice.
regularly change their car insurer or mortgage
provider. Few, however, take the trouble to
re-examine their pension. Some old personal
pension arrangements have cripplingly
high fees. They sometimes suffer poor fund
performance. However, before transferring,

What are the tax advantages?

SIPPs have the same tax benefits as other

personal pensions, including basic-rate tax
relief added by the government for personal
contributions. This boosts any contributions

For every 80p an investor pays into a personal

pension, the government adds 20p, boosting
it to a gross contribution of 1. This basic-rate
tax relief is claimed by the pension provider,
and added to the pension automatically.
Every UK resident under 75 qualifies for
this tax relief, even children and other non-
taxpayers. Higher-rate taxpayers enjoy even
greater tax relief, as they can claim back up
to a further 20p of every 1 gross contribution
through their tax return or local tax office. In addition to the up-front tax relief, the
Additional-rate taxpayers can claim back up investments within a SIPP can grow free of
to a further 25p of every 1 gross contribution. UK capital gains and income taxes.

This means, for example, a 10,000 contribution From age 55 (57 from 2028) withdrawals can
would ultimately cost 8,000 for a basic-rate be made from a SIPP, up to 25% usually tax
taxpayer, from as little as 6,000 for a higher- free with the rest taxed as income. Money left
rate taxpayer and from as little as 5,500 for an in a SIPP when an investor dies can usually
additional-rate taxpayer. Sufficient tax must be be passed to their heirs with no inheritance
paid at the higher/additional rate to claim the tax. Any withdrawals they then make should
full relief at these rates. also be tax free if death occurred before age
75, otherwise it will be taxed as their income.
Employer contributions are paid gross.
However, if an employer pension contribution Information in this guide is based on our
ranks as a valid business expense, it can understanding of current pension and tax
be offset against the taxable profits of the rules, which can change. The value of tax
business. Any contribution an employer benefits depends on personal circumstances.
pays should not count as a taxable benefit so
should not be liable to income tax or National

What are the eligibility & investment limits?

Everyone under 75 in the UK is eligible to start income plus the value of any employer
and contribute to a SIPP. There are no age pension contributions.
limits for transferring other pensions.
A lower limit on contributions to money
To benefit from tax relief on contributions, purchase pensions, 4,000, also applies to
an investor needs to be resident in the UK, or some people who have accessed a pension.
have relevant UK earnings. Crown servants
serving overseas and their husbands, wives For details on the exceptions, request
and civil partners could also benefit. Non-UK our annual allowance factsheet: call
residents could benefit from tax relief if they 0117 980 9926 or visit
contribute within 5 tax years of the tax year
they ceased to be UK resident to a pension
they started when they were UK resident. Where total contributions (personal,
employer and the value of benefits being
Anyone who meets these basic requirements built up in final salary schemes) exceed the
can pay in at least 2,880 per tax year, which allowance the excess will normally be taxed.
with basic-rate tax relief is boosted to 3,600,
whether they pay tax or not. This means There is a facility to potentially carry forward
children, retired people and non-working any unused annual allowance from the three
carers or parents can build up a pension pot. previous tax years. To request a factsheet on
carry forward, call us on 0117 980 9926 or
Many people will be able to pay in more. visit
Tax relief will only be given on the higher of
3,600 or an amount up to 100% of relevant There is also a lifetime allowance, currently
UK earnings where this is a personal 1 million. This applies to total pension
contribution. Generally this is earnings from savings. If total pension benefits exceed the
employment or self employment. lifetime allowance when they are taken or an
investor reaches age 75, the excess could be
Each year there is an annual allowance on hit with a lifetime allowance charge of up to
contributions. This tax year it is 40,000 55%.
for most people, although there are two
exceptions: If an investor registered with HMRC for
protection against the lifetime allowance, in
Investors with adjusted income over some cases making further contributions will
150,000 could have a lower annual mean this protection is lost.
allowance. Broadly, this is your total

What happens to a SIPP when an
investor dies?

When an investor starts a SIPP, they can These rules were introduced in April 2015
nominate a beneficiary. This is usually their and are a significant improvement. More
husband, wife or child, but can be anyone or investors can now pass on more of their
any number of people. A beneficiary can be pension when they die. The rules also open
changed at any time in the future, usually by up the possibility of pensions being used to
writing to the SIPP provider. pass wealth through the family.

When the investor dies, their SIPP will be To find out more and request a copy of our
passed to their beneficiaries usually free of factsheet What happens to my pension when
inheritance tax. I die?, call our Helpdesk on 0117 980 9926.

If they died under 75, the beneficiary can Remember, tax rules can change the exact
withdraw what they like without tax. benefits depend on individual circumstances.

If they died when 75 or older, withdrawals

will be taxed as the beneficiarys income
(0%, 20%, 40% or 45%, depending on
their withdrawals and other income).

How much and where to invest?


Once an investor has started a pension, they
This depends on personal circumstances. We are one step ahead of many people. However,
are unable to offer personal advice in this it is easy to fall at the next hurdle: choosing a
guide, only general information, but those pension investment. Those who do take that
who are unsure can contact us for advice. important step of starting a pension often
fail to take account of where it is invested,
As a rule of thumb, to retire at 65, an investor and sometimes end up in a mediocre default
should consider contributing an annual fund managed by an insurance company. In
percentage of their earnings equivalent to at truth, however, the performance of pension
least half their age when they start saving. investments can have a substantial effect on
If they start saving when 20, for example, affluence in retirement.
they should consider putting aside at least
10% of salary until retirement, while if they As an investor starts to approach retirement,
start at 40, they should consider at least investment strategy will depend on how they
20%; either as annual lump sums or regular plan to draw their pension. For some this may
monthly savings. This percentage should mean moving into less risky funds; for others
also be maintained as earnings increase. The it may mean switching into income-producing
interactive pension calculator on our website funds in anticipation of drawing this income
may be helpful: directly from the pension through drawdown.

The value of investments can fall as well as A SIPP gives an investor the flexibility to
rise so an investor could get back less than manage this transition as they see fit, giving
they invest. access to equity income funds, fixed interest
funds, conservative funds and cash, among
other options, which could be used in the lead
up to retirement.

What are the options at retirement?

Rules which took effect in April 2015 mean THE OPTIONS

investors now have more freedom than ever
when deciding how to take their pension.
SIPP investors, like other personal pension
savers, can normally only start making An annuity is one of the few ways of providing
withdrawals from age 55 (57 from 2028). Up to a secure income in exchange for the pension
25% is usually tax free with the rest taxed as fund. It provides a guaranteed income for
income. life, no matter how long the investor lives. Of
the fund used to purchase an annuity, up to
There is no upper age by which retirement 25% can usually be paid as a tax-free lump
benefits have to be taken and therefore no sum with the rest taxed as regular income.
requirement to take retirement benefits at all, The investor can choose whether the taxable
should an investor wish to keep their pension income should be fixed, increase by a set
invested. percentage over time or track inflation. They
may also qualify for enhanced rates due to
What you do with your pension is an certain health conditions or lifestyle factors.
important decision. Therefore, we strongly
recommend you understand your options The annuity can continue to support
and check your chosen option is suitable for beneficiaries after the investor dies (joint
your circumstances: take appropriate advice life annuity) or stop on death (single life
or guidance if you are at all unsure. annuity). It is also possible to guarantee the
annuity for a minimum length of time (for
Pension Wise, the Governments pension example for 5, 10 or even 30 years). So, if the
guidance service, provides a free impartial investor dies within this time, the income will
service to help you understand your options continue to be paid to their estate, or to the
at retirement. You can access the service beneficiaries nominated, for the remainder of
online at, by the guarantee period.
calling 0800 138 3944 or face to face.
It is worth noting that once the annuity is set
This guide is not personal advice. We offer a up, the options originally selected cannot
range of information to help you plan your normally be changed and any change in the
own finances and personal financial advice investors health cannot be used to enhance
if requested. the annuity in the future.

Drawdown pension to if they die and can change this
nomination at any time.
Drawdown allows an investor to take their tax-
free cash and keep the fund invested, while
drawing income directly from the fund. It is Take a lump sum directly Uncrystallised
more complex and higher risk than an annuity. Funds Pension Lump Sum (UFPLS)
Of the funds moved into drawdown, up to 25%
can usually be paid as a tax-free lump sum. This option was introduced in April 2015 and
allows periodic lump sums to be taken directly
The investor chooses where to invest, and the from a SIPP without having to go into drawdown.
fund value will rise and fall depending on
investment performance. They can choose how Each time an UFPLS is taken, 25% of the lump
much income to take from nothing to their sum will usually be tax free and the rest taxed
whole fund and should remember withdrawals as income. Deciding whether to withdraw
will be taxed. However, with this increased income over time rather than in one go is an
flexibility comes increased risk. Income is not important consideration, and can affect the
secure, so poor investment performance or amount of tax paid.
large income withdrawals will erode the funds
value over time. In the worst case scenario this The remaining pension stays invested, so the
could completely deplete the fund. Whatever fund value and future income is not secure.
income is chosen, the investor needs to satisfy Keeping the fund invested does create potential
themselves the income will be sustainable for as for growth, however, taking lump sums out will
long as they need it to last, and the investment reduce what is left to provide income in the
strategy is compatible with this. future, particularly if the investments perform
badly or if too much is drawn.
The death benefits under drawdown are
generally more favourable than under an
annuity, simply because no one-off decisions Mix and match
need to be made before applying. Drawdown
pension wealth can be inherited by any There is no requirement to take a pension all
nominated beneficiary and can normally be in one go, so investors do not need to make
withdrawn tax free if the original investor died a single choice between these options. They
before age 75, or subject to income tax if after. could decide on a mixture, for example using
some of a pension to cover essential living costs
Drawdown investors can usually nominate through an annuity, and using the remainder to
a beneficiary or beneficiaries to pass their provide a flexible income to support this.

Give a pension the attention it deserves

No-one should care more about your A pension is likely to be an investors most
retirement planning than you. valuable asset after their home in some
cases the most valuable. It deserves attention.
A SIPP is a genuine enabler: it requires Investors who do not want to take control
choices but this need not be daunting. It takes themselves should seek personal advice. To
a little work and some monitoring but this find out more, call our Pensions Helpdesk on
is your money. 0117 980 9926.

A SIPP gives access to the top fund managers,

and the power to change investments at any
time. Best of all, SIPPs need not be expensive.
Low-cost SIPPs herald a new chapter in
pension investing they grant access to
a wide range of investments without high

Important investment notes

This guide is for your information only and Before you transfer a pension please ensure
is not personal advice. It is based on our you understand how the transfer will be
understanding of legislation at 6 April 2017, made. Unless otherwise agreed the transfer
which could change. Unless stated otherwise, will be made as cash and you will be out of
all figures apply to the 2017/18 tax year. the market while the transfer takes place. This
may work in your favour if the market falls,
If you are unsure a particular course of action but if it rises you will not benefit from any
is suitable for your circumstances, you should growth while you hold cash. Some pension
seek personal financial advice contact us companies levy exit fees or a Market Value
and we can put you in touch with a financial Reduction (MVR). You should also check you
adviser. Investments fall in value as well as will not lose a valuable guaranteed annuity
rise so you may get back less than you invest. rate, guaranteed investment return or any
Neither capital nor income is guaranteed. Tax other benefit. Please make sure you will
treatment can change and depends on your benefit from transferring.
individual circumstances.

This guide is issued by Hargreaves Lansdown Asset Management

If you do not need the flexibility of a SIPP, you
Limited. Authorised and Regulated by the Financial Conduct
might consider a stakeholder pension. If you Authority (FCA register number 115248, see
have access to an employers pension scheme for registration). It may not be reproduced without permission.

you should always consider that first.

Please remember pensions are long-term

investments to fund your retirement; you
cannot normally access your money until age
55 (57 from 2028), up to 25% usually tax free
and the rest taxed as income.

Most people can contribute as much as

they earn to pensions. A 40,000 annual
allowance also applies, although this can be
as low as 10,000 for some high earners with
adjusted income over 150,000 and 4,000
for some people who have flexibly accessed
a pension. The lifetime allowance is 1m.
These limits can be affected by other factors
contact us for details.

Contact us

0117 980 9926

Hargreaves Lansdown, One College Square South,

Anchor Road, Bristol, BS1 5HL

Hargreaves Lansdown Asset Management Ltd, One College Square South, Anchor Road, Bristol, BS1 5HL. 0417
Authorised and regulated by the Financial Conduct Authority

16 Enquiries: 0117 980 9926