SIPPS Now - Blog

Higher SIPPs charges - a trend?

Standard Life have just announced increases to their SIPPS charges. Is this the start of a trend across the industry?

Their message reads:

" Every year we review our SIPP charges as part of our product terms and conditions, and as of 1 January 2011 we will be making changes to our charges.

In summary the change for existing customers are:

•4% increase to existing charges

And, from 1 January 2011 we will offer the following 2 new services for all customers:

•Drawdown Annual Review Charge of £100 – this is a new service we’re introducing but will not be charged if the review is requested and completed online. We intend to make this service available towards the end of March 2011.

•Commercial Property Own Solicitor Charge of £640 for purchase or sale – we now offer the option for customers to use their own solicitor. (This is subject to satisfying our terms and conditions of service, and an additional hourly rate may apply in certain circumstances).

For new customers only (on or after 1 January 2011) we'll be introducing 2 new charges which are shown below:

•Drawdown Set-up Charge of £175 – for customers who are invested in full SIPP options and only on the first benefit crystallisation event.

•Early Transfer Out Charge of £750 – for customers who fully transfer out of the active money SIPP to another provider within the first 12 months. The charge will not apply on life events such as divorce, terminal illness and death (NB, this does not apply to GSIPP customers).

We’ll be writing to existing customers by 1 October 2010 to let them know about the changes and how they will be affected. This is a legal requirement."

QNUPS - new section of our website

Following a number of requests in recent weeks, we have added a new QNUPS page to the site to complement our existing QROPS page.

QNUPs, or Qualifying Non UK Pension Schemes, is a technical term around definition of a pension scheme for IHT purposes. In effect a QROPS will meet the definition of a QNUPS, but a QNUPS may not be a QROPS - clear so far?

The bottom line is that there is lots of talk about the QNUPS definition giving an opportunity to make pension funds exempt from Inheritance Tax. This effects wealthy UK Domicles who are non resident. In effect you could deposit a large sum into a suitable scheme today and it will not be considered for Inheritance Tax purposes tomorrow. This opportunity could exist, even though there is no eligibility to make the pension contribution under standard pension scheme rules.

An exciting prospect for the client no doubt, but an extermely complicated area where the legal position is open to interpretation. As a first step take a look at our QNUPS page.

Contact us if you want to know more. We have a team of QNUPS/QROPS specialists waiting to speak with you.

further QNUPS information here

Jigsaws and SIPPs

I was talking to a client this week about the concept of jigsaws and SIPPs.

He had a commercial property held in a SIPP yet wanted to access some cash from the fund.
I will go into his personal circumstances here, suffice to say there were a number of factors to be considered and options available, along with the usual curve balls. His was a classic case of a client ‘seeing the picture on the box’ and assuming the jigsaw pieces he had would make the picture.

Everything rarely fits the way we want it to. We find ourselves talking to a client who wants to purchase a property with a SIPP, but does not have the fund value to do it. Sometimes they have cash to make contributions but do not have the income to set it against, or vice versa.

This is often the problem where the client goes direct to a ‘low cost’ DIY SIPP provider. The client has an idea which they have not talked through with a suitably qualified and experienced person. They transfer their funds into a cash account and then find that the ‘picture on the box’ is not what they wanted.

Pension arrangements are sometimes like 1000 piece jigsaws in their complexity. When dealing with five, six, or seven figure sums it makes sense to invest a little time and money in the right advice.
Let your SIPPs expert help you build the best picture you can from the jigsaw pieces you have available.

Post Budget Long Term Savings

The Budget was perhaps surprisingly encouraging for savings, giving most people real opportunities to save tax efficiently, with some careful planning.

Traditionally the core part of long term savings has been through pension contributions. However last year’s announcements for those with income of over £130,000 p.a. not only restricted the amount of high rate relief available for last year and this year, but also put in place legislation to remove all high rate relief from next year for those with an income of over £180,000 p.a.. The new Government is looking to repeal such legislation and introduce a less complex method to limit the amount of high rate relief. We are likely to see a severely reduced annual allowance (from the current £255,000) to between £30,000 and £45,000 on which all contributions should benefit from higher rate relief. We will wait to see whether this is at the full 50% or limited at 40% - still a lot better than 20%! For employees, who can exchange salary for pension contributions, the effective rate of relief is further enhanced by the NIC savings, which itself is going up for employers and employees next year.

A major reason for many not embracing pensions has been the restrictions at 75 to secure a pension with no lump sum death benefit available, other than to charity. Again the Government will announce new measures to come in next year which we expect will allow the current regime of unsecured pensions (USP) to continue beyond 75. With immediate effect, and until new legislation comes in, you are now able to have USP until age 77, assuming you haven’t already secured your pension. The lump sum, usually at 25%, must however be taken by 75.

Given that the level of pension contributions for higher earners will be restricted, although hopefully with full tax relief, what else should you do to accumulate wealth tax efficiently?

With higher rates of income tax and CGT, ISAs make even more sense and the Government have promised to increase the current £20,400 (per couple) annual allowance in line with inflation.

It was also encouraging to see that couples can continue to make use of up to £20,200 per annum of realised capital gains before paying tax at 18% or 28%. This will continue to shift the emphasis for investors to growth rather than income, if both are higher rate tax payers. But if one party is not a high rate tax payer, it is very important to make full use of the personal allowance, increasing to £7,475 next year and eventually to £10,000, as well as the full 20%/18% (income/gains) tax bands.

Finally there are many tax payers who pay high rates whilst working but who can structure their affairs such that they and their spouse are not high rate tax payers in retirement. This allows almost £90,000 of taxable income, taxed at no more than 20%.

Investments can also be arranged to defer the trigger for income or capital gains tax to a point when one is not a high rate tax paper. This is a very useful technique which when used in conjunction with tax free ISA income, and use of the annual CGT allowances, creates a potentially very comfortable and tax efficient retirement.

All this makes this an excellent time to enquire at SIPPs Now

Election day and SIPPs Now

I felt very bright and cheerful at 7:05 this morning. In the queue at the polling station I realised that casting my vote is one of the few actions that makes me feel part of a democracy.

But which of the major parties have policies most likely to benefit our visitors at SIPPs Now? Here are some headline promises.

LABOUR

Increase state pension gradually from age 65 to 68 between 2024 and 2046
Re-link state pensions to earnings by the end of the next parliament
Start auto-enrollment into new pension scheme from 2012
Restrict higher rate pension tax relief where salaries are £130,000 or more

LIBERAL DEMOCRATS

Restore link between pensions and earnings
Base pension on citizenship, rather than NI contributions
Restrict higher-rate tax relief on pensions
Abolish default retirement age
End compulsory annuities at age 75

CONSERVATIVES

Re-establish the link between state pensions and earnings
End compulsory annuities at age 75
Raise state pension age to 66 by 2016 for men (2020 for women)
Reverse effects of abolition of pension tax credit on dividends

Our verdict:

LABOUR - 4/10 if we want more people saving we must encourage them, not cut tax relief
LIBERAL DEMOCRATS - 6/10 compulsory annuities must go given current demographics
CONSERVATIVES - 8/10 pension tax credit was a mistake from day one, it must go

Looks like there is no hung parliament on pensions policy, but whatever happens today, we will be here giving you sound independent pensions advice.