When it comes to saving money for the future, a Self-Invested Personal Pension, or SIPP, can be a suitable option for both UK and Non- UK residents.
There are several pension choices to choose from, but a SIPP can provide you with greater flexibility, portability, and control over your investments.
Is a SIPP the right choice for you?
Like all pensions and investments, there are various things to consider. The benefits are wide and varied, including:
Consolidation:
If you have a number of different pension schemes, it can be beneficial to consolidate them all into a SIPP. This can help with ease of administration, especially in the drawdown phase. Before doing this, it is important to check the comparative fees and investment mandates.
Investment Range:
SIPP’s often provide a greater investment choice than standard defined contribution schemes.
Portability:
A SIPP can come with you when you change jobs and your employer can make contributions to it (if you’re in the UK). You can hold an international SIPP as a non- UK resident. Although if you are an expat and you make contributions, you won’t get tax relief on these. Upon repatriation you can start to benefit from tax relief again.
Use of Dual Taxation Agreements:
As a UK national with an international SIPP, you may be able to take advantage of a Double Taxation Treaty between the UK and your country of residence. DTA’s are in place to prevent you paying tax twice on pension income. If the country you reside in has a lower tax on pensions than the UK, this can be beneficial. For example, in the UAE there is zero income tax on pensions and the DTA between the UAE and the UK, stipulates that tax should be paid in the residing country. This means if you permanently reside in the UAE while withdrawing monies from your SIPP, zero tax is due. Note there are usually extra rules at play here, such as an intention to not return to the UK and a requirement that you have been outside of the UK for 5 years plus. A Financial Planner can assist in helping you understand the rules.
UK Regulation:
SIPPS are governed by the UK Financial Conduct Authority
Variety of Currencies:
You can invest in a currency of your choice or different currencies. – it doesn’t have to be UK sterling. This can be useful if you are planning to retire in another country, so you do not suffer due to disadvantages exchange rates.
Of course, there may be disadvantages to a SIPP. These include:
Higher costs:
There are a number of fees to consider when setting up a SIPP. These include the set-up fee, annual management charge and dealing charges.
Administration:
There is a certain amount of administration required which can be more complex than for standard defined contribution or workplace schemes.
About Your International SIPP
Tax Relief
When residing in the UK, any contributions to a SIPP are given basic income-tax relief by the UK government. This means you’ll receive an additional sum on your investment, depending on your tax bracket. There are limits to how much you can contribute and how much tax relief you will receive. You won’t benefit from this tax relief as an expat.
Double Taxation Treaties
The UK has agreements with most countries. The premise behind DTA’s is to stop individuals paying tax on one income in two countries.
Lifetime allowance
SIPPS affect your lifetime allowance in the same way as other pensions. Your lifetime allowance is the maximum value you can hold across all UK pensions before additional LTA taxes are due, over and above your marginal rate. This currently stands at £1,073,100. Any excess over the LTA is punitively charged at additional rates of tax. They are 25% (plus your marginal rate) if taken as income, or 55% if taken as lump sums.
Inheritance tax and SIPP’s
Pensions, including SIPP’s are free from Inheritance tax. So, when you die, your SIPP can be passed onto your loved ones. Whatever is left in the pot can be passed free from IHT. It will also be free from income tax if the member dies before age 75. If the member is over 75 the beneficiary will pay their marginal rate of income tax on withdrawals.
Final Salary Pension Schemes
For those who have a final salary scheme, there may be some instances where it is beneficial to transfer to a SIPP. However, remember you will be giving up potentially valuable guarantees. A final salary pension scheme pays you a guaranteed income for life. And typically, your surviving spouse will receive 50% of this annual pension. Conversely, a SIPP will not provide a guaranteed income. But it can help with succession planning and leaving a legacy. As 100% of any monies remaining can be passed onto your loved ones.
The decision to transfer needs to be taken with care. And in many instances, you will be better retaining your benefits in the final salary scheme as opposed to transferring to a SIPP. If your transfer value is over GBP 30,000 you will need to take regulated pension transfer advice on the suitability of a pension transfer.
The Story of Mary
Mary obtained a transfer value from her deferred final salary scheme, She is too young to take benefits now, but is pleasantly surprised by the transfer value.
She also wishes to take early retirement and the DB scheme uses punitive early retirement factors, that would reduce her annual pension considerably. Mary is a relatively experienced investor and gives consideration to the level of return required to match the scheme pension.
She is confident that this return can be achieved and wishes to take the risk that she can outstrip the benefits provided by the final salary scheme. Mary also has a number of DC schemes which are with different providers. She is also eager to consolidate her pensions, so that everything can be managed easily when it comes to drawdown. After consideration of the factors, she decides to seek regulated pension transfer advice.
After taking advice from a Pensions Specialist and comparing the benefits available in the scheme to a SIPP, the final recommendation was to transfer away from the scheme. Mary was comfortable with investment risk and used our services to explore the option of transferring to a SIPP. Which suited her needs and met her objectives. She feels she is now perfectly positioned for her impending retirement.
Find out how we can help you
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