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 (Between 55 and 77 years old)
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 an annuity
  • Unsecured income (Income Withdrawal from the fund)

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 £1.8million (2010/11). The entitlement to a pension commencement lump sum must be exercised before attaining age 75.

Annuity Purchase
An 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.

Income withdrawal
If you’re under 77, you don’t have to purchase an annuity. Instead, you can draw a pension directly from your fund – called ‘Unsecured Income’.

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 five years. 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.

How you take benefits (at age 77)
When you reach the age of 77, you’re still not restricted to purchasing an annuity. You can continue to withdraw income directly from your SIPP fund in the form of an alternatively secured pension. Like an unsecured pension, the level of income you may withdraw is limited by HMRC. This limit is reviewed annually, and is calculated for someone aged 75 irrespective of your actual age.

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 Income Withdrawal
You can combine Phased Retirement and Income Withdrawal 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 an Unsecured Pension 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.