A-Day, Thursday, 6th April 2006 , heralded the biggest shake up of UK pensions in more than a decade following reports that massive pensions shortfall coupled with increasing life expectancy meant that many company schemes are underfunded and some were even being wound up.
The main purpose of the new legislation is to make pension saving much less complex .
The new rules equally apply to Money Purchase/With-Profit schemes, Personal Pensions, AVCs, FSAVCs and Company Pension schemes.
An individual can now be a member of a company pension scheme and also contribute to a personal pension at the same time. They are also able to draw their pension and carry on working.
"Cash shortfall in final salary pension funds across the UK amounts to a £100bn." Pension Protection Fund's chairman Lawrence Churchill (16th December, 2005)
HSBC, Britain's biggest bank, halved its pension fund deficit with a £1 billion cash injection, the largest single payment made by a UK company into a retirement fund. Other Companies with large deficits include GlaxoSmithKline, BP and Lloyds TSB.
The Benefits of SIPPs.
· Complete control of pension assets
· No risk from company scheme shortfalls
· Investment decisions are the members
· Client chooses the risk
· Wider range of possible investments
· Greater benefits for Spouse and Dependents
· Usual Benefits of investing offshore provided by life company portfolio bond
· Do not have to buy an annuity
What is a SIPP?
Introduced in 1991, a SIPP is a pension contract in your own name which gives you more control over your pension investments.
It can be set up with funds transferred from existing pension arrangements.
Investment Choice.
From April 2006, a SIPP can invest in a much wider range of assets, such as cash deposits, quoted equities, collective investments and commercial property. Investment growth is free of UK tax on non-dividend investment income. Rent is received tax-free and bank account interest is paid gross. Also there is no CGT to pay when an investment is sold by the SIPP.
Not irreversible.
By taking out a SIPP you are not making a once and for all decision. If at some point you decide that a SIPP is no longer appropriate you can instruct the provider to sell the assets and transfer your fund as cash to another pension scheme.
Retirement & Death Benefits
The new rules give you more flexibility over how and when you draw your retirement benefits. Notably, you will no longer be required to purchase an annuity at 75. Instead, you can continue to draw your income directly from the fund using Alternatively Secured Income (ASP). A new concept, known as the "family pension" will see pension funds cascading down generations of families. |
