How it works
SIPP – How it works
Your SIPP Share Dealing Account shares many of the key functions and facilities of our easy to use Share Account, but with the important difference that, by virtue of the Self Invested Personal Pension (SIPP) regulations, you get tax relief on your contributions.
The tax allowances change from time to time – they are generally reviewed and announced as part of the Chancellor's Budget statement. Details are included in the Key Features document.
You'll find more detail about these allowances below, and in the technical guide that comes with your application pack.
What is a SIPP?
The Share Centre's SIPP Share Dealing Account is a Self Invested Personal Pension (SIPP) operated in conjunction with pension administrators, Sippdealxtra.
SIPPs are governed by H.M. Revenue & Customs rules, covering such matters as how much you can contribute to the Plan in any tax year, where investments can be made and how benefits can be drawn out of the Plan. These rules are updated and amended from time to time.
Every time you make a contribution to your SIPP Share Dealing Account, tax relief at the basic rate is added to your account; that way it's easier for you to budget and there's no undue delay in receiving the tax benefit due to you. For higher rate taxpayers, the difference between the basic rate and the higher rate is claimed back as part of your annual tax return.
Your contributions are, of course, earmarked to provide for your eventual pension so, naturally, there are restrictions on withdrawing them once you've paid them in. See 'how does it pay out', below.
When you come to take your retirement benefits you don't have to buy an annuity – so you have flexibility over how you continue to invest and, subject to maximum limits set by H.M. Revenue & Customs, how you receive your pension benefits.
You'll find full details about SIPPs the aims, risks and considerations you ought to bear in mind when you visit our pension administrator partner's website at www.sippdealxtra.co.uk.
Who can have one?
Almost everyone can have a SIPP Share Dealing Account, even those who are under 18 or not currently in paid employment.
How much you can put into your SIPP Share Dealing Account each tax year will vary according to your earnings but there's no minimum age limit and you can continue to contribute right up to your 75th birthday.
Follow this flowchart to see how the eligibility rules affect you:
How much can I contribute?
Contributions to a SIPP Share Dealing Account are subject to an annual allowance as set out by H.M. Revenue & Customs (HMRC), as follows:
| 2010/11 | £50,000 |
The annual allowance is the mechanism used by HMRC to restrict tax relief on large contributions.
You will receive tax relief on your contributions, or on those made on your behalf, of up to the higher of £3,600 (the Basic amount) and 100% of your UK earnings.
If you are not currently employed and, therefore, do not have any UK earnings, you can still pay contributions of up to £3,600 gross a year and receive basic rate tax relief on the amount you contribute.
There's an overall 'lifetime allowance', currently set at £1.8 and reducing to £1.5m from April 2012: if the total value of all your pension investments (across all your pension schemes) exceed this level there will be an additional tax charge, called the lifetime allowance charge, on the excess.
Once again you can find out more details about allowances, current contribution levels and overall contributions limits, or from the Key Features document you'll receive with your application pack. Your local HM Revenue & Customs office or their website (www.hmrc.gov.uk) can provide more information too.
Please bear in mind the bases and levels of taxation may change; once your SIPP Share Dealing Account is up and running our partners, Sippdeal, will keep you advised of any taxation changes that affect your pension.
How does it pay out?
You can choose to take your retirement benefits any time after age 55 so long as you start to do so by your 75th birthday. It may also be possible to start earlier if you are in serious ill-health.
The investment pot you've built up in your SIPP Share Dealing Account account can continue to remain invested after you retire and, subject to maximum limits set by H.M. Revenue & Customs, you'll then have flexibility and choice over how you take your pension benefits, either by income withdrawal (where your money stays invested and you withdraw a regular income) or by purchasing a lifetime annuity.
Further details about pension benefits are available in the Key Features document that comes with your application pack.
You can also choose to take a lump sum, which can be up to:
- either 25% of the value of the fund designated to provide your benefits; or
- 25% of your unused lifetime allowance,
whichever is the lower.
Currently, this lump sum is paid to you tax-free and, if you want to choose this option you do need to do so before you reach your 75th birthday.
Of course, taking the lump sum option reduces the amount you have left in your 'pension 'pot' to purchase your pension.
The level of benefit you can take from a SIPP with income withdrawal will depend on several factors, including the performance of your investments.
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