sipp

Available benefits

When you can start taking benefits
Under the current rules, you can start taking your pension benefits from your plan on or after your 55th birthday – whether you’re retired or not.

How you take benefits (From age 55)
When you retire, your @sipp plan will provide:

• A pension commencement lump sum (this is a tax-free lump sum) of up to 25% of the fund, and;
• A pension income, which may be taken as:
  • Secured income in the form of a lifetime annuity
  • Unsecured income in the form of either Capped or Flexible Drawdown

Tax-free cash
When you start taking benefits from your @sipp plan, you’ll be entitled to a tax-free lump sum of up to 25% of the value of the fund. There is however, an overall limit to how much of your pension benefits are tax-free – which is called the lifetime allowance. This currently stands at £1.8 million (2011/12). However, the lifetime allowance is to reduce to £1.5 million the year after (2012/13).

Annuity Purchase
A lifetime annuity is a product provided by insurers that provides a guaranteed income. The amount of income you can get from these depends on the current annuity rates and the type of annuity you purchase. The pension can be guaranteed for up to 10 years.

Capped Drawdown
However, you don’t have to purchase an annuity. Instead, you can draw a pension directly from your fund – called ‘Capped Drawdown.

The amount you can take out in this way is limited by HMRC. This limit is based on your age, the value of your fund and the Government Actuary’s Department (GAD) tables – and once started is reviewed every three years before age 75 and every year after age 75. The income you decide to take can be between nil and the maximum allowed by the calculation.

Of course, if you take a high level of income, if annuity rates come down or if your investments don’t perform as hoped and can’t cover what you withdraw, your income will be smaller in later years.

Flexible Drawdown
The Flexible Drawdown option allows unlimited direct income from your fund. Conditions apply, including the requirement to have a minimum guaranteed lifetime pension income of at least £20,000 per annum.

Phased Retirement
Because your @sipp plan is automatically divided into 1,000 equal segments, you can (in effect) stagger your retirement – taking benefits from as few or as many segments as you’d like. Each segment then provides up to 25% of its value as a tax-free lump sum, while the balance can be used to purchase an annuity (which is then taxed under PAYE).

That means you can use more of your fund’s segments every year to provide an income – and we’ll be on hand to advise on how many segments you’ll need to provide a certain level of income.

Phased Drawdown
You can combine Phased Retirement and Capped or Flexible Drawdown to take a ‘Phased Unsecured Pension’. So, instead of buying an annuity with Phased Retirement, you withdraw income directly, as described above.

Arranging your retirement benefits
We always recommend that you take professional advice on the investments you need to provide your benefits. If you decide that Capped or Flexible Drawdown is right for you, you should also consider what kind of investments you want to hold.

We can arrange for you pension income to be paid in advance or in arrears, on a monthly, quarterly, half-yearly or annual basis.

The value of these investments are not guaranteed and you may not get back the full amount invested.

Taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is taken; this could result in a lower income when an annuity is purchased. Annuity rates may be at a worse level when you eventually purchase an annuity.