Self-invested personal pensions

Providing greater flexibility with the investments you can choose

A self-invested personal pension (SIPP) is a pension ‘wrapper’ that holds investments until you retire and start to draw a retirement income. It is a type of personal pension and works in a similar way to a standard personal pension. The main difference is that with a SIPP, you have greater flexibility with the investments you can choose.

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Freedoms to turn pensions into money you can use

One of the most important decisions you will make for your future

Under the pension freedoms rules introduced in April 2015, once you reach the age of 55, you can now take your entire pension pot as cash in one go if you wish. However, if you do this, you could end up with a large Income Tax bill and run out of money in retirement. It’s essential to obtain professional advice before you make any major decisions about how to access your pension pot.

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Delaying taking your pension

Restrictions or charges for changing your retirement date

You might be able to delay taking your pension until a later date if your scheme or provider permits this. If you want your pension pot to remain invested after the age of 75, you’ll need to check with your pension scheme or provider that they will allow this. If not, you might need to transfer to another scheme or provider who will.

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Purchase an annuity

Choosing a taxable income for the rest of your life

You can normally withdraw up to a quarter (25%) of your pot as a one-off tax-free lump sum, then convert the rest into a taxable income for life called an ‘annuity’. There are different lifetime annuity options and features to choose from that affect how much income you would get. You can also choose to provide an income for life for a dependent or other beneficiary after you die.

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Flexible retirement income

Re-investing funds designed to provide you with a regular taxable income

With this flexible retirement income option known as ‘flexi-access drawdown’, you can normally take up to 25% (a quarter) of your pension pot or of the amount you allocate for drawdown as a tax-free lump sum, then re-invest the rest into funds designed to provide you with a regular taxable income. You set the income you want, though this might be adjusted periodically depending on the performance of your investments. Unlike with a lifetime annuity, your income isn’t guaranteed for life – so you need to manage your investments carefully.

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Small cash sums from your pot

Taking money from your pension as and when you need it

You can use your existing pension pot to take cash as and when you need it and leave the rest untouched where it can continue to grow tax-free. For each cash withdrawal, normally the first 25% (quarter) is tax-free, and the rest counts as taxable income. There might be charges each time you make a cash withdrawal and/or limits on how many withdrawals you can make each year.

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Cashing in your entire pension pot

Without very careful planning, you could run out of money and have nothing to live on

You could close your pension pot and take the entire amount as cash in one go if you wish. Normally, the first 25% (quarter) will be tax-free, and the rest will be taxed at your highest tax rate by adding it to the rest of your income. Once you’ve taken all the money, your pension will close and you won’t be able to make any further payments into it.

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What’s your magic number?

Your five-year plan to a comfortable retirement

Retiring is a huge life event. And the very concept of retirement is changing with phased retirement becoming more common. The way we access our pension is now a lot more flexible, and it’s no secret that in the UK we’re living longer than ever before which means we need to make the right choices.

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Smart investments

Should I invest into a pension or an ISA?

Investors looking for tax-efficient ways to build a nest egg for retirement often look to both Individual Savings Accounts (ISAs) and pensions. Tax-efficiency is a key consideration when investing because it can make a considerable difference to your wealth and quality of life.

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Goldilocks economy

How to prepare your portfolio for inflation

Very low or very high inflation is damaging to the economy. The aim is usually to try and keep the Consumer Prices Index (CPI) at 2% in order to maintain a ‘Goldilocks Economy’ – not too hot, not too cold.

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