Personal Pension

SIPP Pension and What You Can Put Into It

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What is SIPP pension? Well, with it you are able to arrange investments that are either already your own or not into your personal pension pot. SIPP, by the way stands for self invested personal pension.

Under this kind of scheme you could have more kinds of investments, like commercial properties and shares, which are of course a lot when compared to the things offered by a normal personal pension.

You could also have day to day control on your investment, which you could change from cash to shares, and shares to cash.

And even having unsecured pension is also possible with this one. Also known as income drawdown and income withdrawal, it allows you to have lump sum free from tax charge from your fund while it is stayed invested even after retirement.

SIPPs allow you to put into your pension things like:

  • Deposit accounts with financial organizations like building societies and banks
  • Direct property investment
  • Government securities, known as gilts
  • Insurance company funds
  • Investment trusts
  • National savings products
  • Particular stocks and shares, which are quoted on a recognized UK and/or overseas stock
  • Property
  • Traded endowment policies
  • Unit trusts.

SIPP Pensions are very flexible pension schemes

Helpful Tips on SIPP Pension Disadvantages

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SIPP pension has both irresistible advantages and of course undeniable disadvantages, like any other scheme there is. And so, here are some helpful tips you could follow when dealing with SIPPs:

First it can be opened for as low as £5,000, but it’s not advisable for little sums. So it is not a good idea for those who are mid way their career. Instead it is advisable if you are still young and just at the start of your own career, for along the way, large amounts may still be put in.

Next is that it’s a personal pension that you should administer on your own. So when dealing with investment strategy, it should all be your duty. Don’t have someone deal with it for you, that’ll just cost you more.

Third you should know that it costs higher compared to stakeholder pension, and even more with money purchase company scheme.

Another is that you should be very careful with the investments you put into it. It is a long term investment, so be careful. Because if your not, you might eliminate your entire pension with one inappropriate investment.

Lastly, remember that you’re still deemed to have annuity when you reach 75.

Basics on SIPP Pension

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Do you know what SIPP pension is? SIPP stands for Self Invested Personal Pension. It is a form of pension that will permit you to put together investments (either you already own or not) into your own personal pension pot. With it you can do things like:

  • Have more kinds of investment, such as commercial property and shares, compared to what a normal personal pension offers
  • Have unsecured pension, or income drawdown, which allows you to obtain tax-free lump sum from your fund while it stays invested

This type of scheme is available to both companies and individuals. For companies it is referred as Group SIPPs.

But be warned, not because it has advantages doesn’t mean it has no disadvantages. So here are two helpful tips on disadvantages:

  • SIPPs are not a good idea for those with little sums. You can start for as low as £5,000 to open up SIPP. That’s good if your still young and just starting your own career, but not if your midway your career
  • It is a personal pension that you should control by yourself, especially with regards to your investment strategies. Hiring someone to manage it will only cost you more.

Do You Know What Unsecured Pension is?

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When under money purchase, a type of scheme categorized as a form of company pension, you and your employer will raise a fund for your retirement. This fund will normally be used to buy an annuity, or regular income, which is received yearly.

It is normally used to buy annuity, but in some instances when not yet interested in having annuity, the other option is to have unsecured pension. Sometimes referred as income withdrawal or drawdown, it lets you acquire income on your retirement from your fund which is still invested on the same scheme.

Although it is a risky business, for your invested fund will all be nothing if the investment itself goes bankrupt. Not to mention the negative effects of delayed purchasing of annuity. It is a commonly used type of pension for it offers a lot of enticing features, which includes:

  • The flexibility on your income. With this, you can vary the amount you receive from minimum to maximum limits. Even the period of time when to acquire your profits can vary from monthly to quarterly to yearly.
  • The opportunity to have firm control over your money while it is invested.
  • The opportunity to choose your own death benefits.

Types of Company Pensions

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When dealing with different pension providers, it is possible that the scheme they offer will vary. Just like with company pension schemes. But even if they are different, they are still categorized into two general types, which are money purchase and final salary scheme.

In money purchase, your pension will be based on the contributions you and your employer have made and the interest that it accumulated. This contribution will create a fund that will be used to purchase annuity on your retirement.

The fund is computed using an annuity rate, which is based on age, gender and the interest rate at that time, making it impossible to predict your possible pension.

Under this, members are protected by a Pension Protection Fund if there is deficit on the fund. Deficit may only occur if there is fraud and/or theft.

While in final salary (or defined-benefit), your pension is based on your salary and the number of years you are under the scheme. So if your salary is fixed and you can assume the number of years you’ll stay under this, you will somehow know in advance your possible pension.

With some providers, you need to wait you reach 65 to take your benefits. Also option of having tax-free lump sum with smaller monthly income is possible under this scheme.

Stakeholder Pension Standards

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Do you know that stakeholder pension differ from other personal pension not just because it offers flexibility, but also because of the strict standards it follows? It should, by law, follow minimum standards to guarantee costumers like you that it gives value for money, security and flexibility.

And these standards are: limit on yearly management charges, security and flexibility.

For limit on yearly management charges, this means that:

  • For the first ten years under this scheme, managers can charge fees of up to one and half per cent of your pension fund yearly
  • For the continuing years, up to one per cent yearly

While for security, sanctioned managers and/or trustees should manage the scheme. And they are responsible in ensuring that the scheme meets all legal requirements.

And for flexibility, this must make sure that you, as the policyholder, are allowed to:

  • Start payments even as low as £20. And can be given not just at regular, but also at less regular periods
  • Stop, re-start and even change payments whenever desired. And should not be fined when doing so
  • Switch to a different provider, and also should not be fined by the provider you leave.

What to Know about Stakeholder Pension

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Being a flexible type of personal pension, defines this scheme. Known as the stakeholder pension, it is so flexible that you could change, stop, and even re-start your contributions whenever you want. And if that does not make it flexible enough for you, it also has limit on annual management charges and very low minimum contributions.

And this feat is not just for show. It should pass minimum standards defined by law to ensure that the service it offer is flexible, secured and gives value to your money.

This, by the way, works just like any other money purchased pensions. To increase your fund, you need to contribute money. And thru a certified manager your fund will be invested.

And based on your contribution and the way your fund’s investment have performed you will know what your fund’s value is. In other words, to increase its value, you need to contribute regularly to your fund, and hope that its investment will perform well.

Though that doesn’t mean that you’re compelled to contribute at all times, remember that because of its flexibility, you are allowed to change, stop and/or re-start payments whenever you desire. Though stopping will not be a good idea, for it will only lessen your fund.

Info on Tax Relief and Personal Pension

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Do you know that the government encourages everyone to save towards pension by having tax relief on contributions? Isn’t it great? Not just you make sure that with this long-term investment you have sufficient income on retirement, but you also earn more in the process. Doubting its possibility? Here’s how tax relief works.

For example, for every amount you save on a scheme, 20 per cent will be taken by your provider from the government. This 20 per cent basic rate will be the tax back.

Meaning to say, if you have a higher tax rate, definitely you will earn higher amount from tax back. And not to worry, even if you don’t pay tax you are still entitled with the basic rate of tax relief.

And to have tax relief from your pension contributions, you only need to apply for a personal pension scheme. This type of scheme is available to those whose:

  • Unemployed but has the capability of paying into a plan
  • Self-employed
  • Earning modest amount of income, but still wants to top up the amount they receive from a company pension
  • Employer does not give any company pension scheme
  • Capable of paying into a company pension but choose not to.

Basics on Pension and Personal Pension

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Pension is the term used when we refer to a retirement benefit. It can either be acquired by if you paid into a pension or if your employer paid your pension benefit while you are still working.

And be warned not to mistake it with some Social Security programs. They might look similar with each other, but S.S. programs are administered differently. To differentiate them, S.S. programs are government funded while the other one is privately funded.

Pensions have different types of scheme, like for example a personal pension. It can be availed by anyone, even as young as 18 years old, and benefits can be claimed anytime from age 55. Currently it is the most popular scheme to those who don’t have access to company pensions. To avail it, all you have to do is pay or contribute to providers or financial organizations, which are typically insurance companies, banks, etc.

It is available to anyone whose:

  • Unemployed but has sufficient money to pay into a plan
  • Self-employed
  • Employers does not offer any company pension
  • Salary is not that big but desires to put up the amount they acquire from company pension
  • Those who choose not to pay into a company pension even given the option.

Essentials about Personal Pension

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If you are interested in availing personal pension as your future investment when you retire then this article will be very helpful.

Availing a pension scheme, it may be personal or company, you should know first whether it suits your situation or not. And to know that, the following are just some of the situations that it could be applied:

  • If you are unemployed but you are capable of paying a pension plan
  • If you are self-employed
  • If your employer does not provide a company pension scheme
  • If you don’t want to pay into a company pension

And in contrast here is an instance where it is not applicable:

  • If your employer, of course, offers company pension

Because availing a pension plan is a delicate matter, there are other important factors that should also be considered when availing a scheme, aside from just knowing whether  if it suits the situation you are currently in or not. And these financial decisions are:

  • How will your contributed money be invested?
  • What are the rules on payments or contributions?
  • For setting up your pension how much will your provider charge you?
  • For administration how much will your provider charge you?