Self Invested Personal Pension (SIPP)

What is a SIPP? (or Self-Invested Personal Pension)

A SIPP is a pension ‘wrapper’ that holds investments until you retire and begin to draw an incomes. It works in a similar way to a standard personal pension. The main difference is that with a SIPP you typically have more flexibility when you choose what to invest into.

With standard personal pension schemes, your investments are managed for you within the pooled fund you have chosen. SIPPs give you the freedom to choose and manage your own investments. However, because this is a complex area, most people choose to have an authorised investment manager make the decisions for them.

Essential Details of a SIPP

  • A SIPP is based in the UK and regardless of where you live it is regulated by UK law.
  • A SIPP is available to you regardless of where you live in the world.
  • Under current legislation you can start drawing retirement benefits from the age of 55. You can do this even if you are still in employment.
  • Your benefits are flexible. You may draw as much or as little income as you like. You can also stop and start withdrawing whenever you wish.
  • Up to 25% of your total funds can be withdrawn as a tax-free cash lump sum.
  • If needed you can transfer your funds into a QROPS later on.
  • SIPPs are excellent for those who plan to retire in the UK. They are equally beneficial for those in a nation with a preferential double-taxation agreement with the UK.
  • SIPP investments grow free of capital gains tax or income taxes.

What can you invest into within your SIPP?

  • Quoted UK and overseas stocks and shares
  • Unlisted shares
  • Collective investments (such as OEICs and unit trusts)
  • Investment trusts
  • Gilts
  • Exchange traded funds (ETFs)
  • Property and land (but not most residential property)
  • Insurance bonds

Some SIPPs can also raise a mortgage against property. The rent will go towards paying down the loan and the costs of running the property.

Things to consider about SIPPs for expats

A SIPP is a personal pension. You are not required to live in the UK to be able to invest into one. However, there are important considerations if you do not live in the UK and are thinking about using a SIPP.

1. SIPPs are held in the UK and as a result they do not offer currency flexibility. Consequently, all investments and payments must be in GBP. Furthermore, if you end up retiring abroad and spending your income in a foreign currency, your income will be subject to fluctuations in value due to the exchange rates.

In contrast, if you are paying into your SIPP while earning in a foreign currency and the value of the pound falls, the amount you are actually investing could consequently increase.

2. SIPPs abide by UK pension rules and as such are affected by any changes the UK Government makes to pension rules. A recent example of this would be the changes to the Lifetime Pension Allowance that saw a reduction in the allowance from £1.25m to £1m.

3. When drawing an income from your SIPP you will still be subject to UK income tax. If you no longer live in the UK, your income may also be subject to tax in your country of residence. Hence it is critical to understand the local tax rules as well as those in the UK.  You can then make an informed choice about how to draw an income from your SIPP.

4. Many expats will speak to a financial adviser while making a decision about their retirement plans. They will do this because it is a very complex and critical area. If you are seeking advice from an adviser in the UK, remember that they may not be fully aware of all the opportunities for expats.

Speak to us for a review

Contact us if you are thinking about setting up a SIPP or already have a SIPP. We can provide more information about your options and establish any potential areas for attention.

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