SIPP – or Self-Invested Personal Pension – is often the most flexible option for pensioners. This is because it allows investments from a wider selection of sources, as well as the option to make adjustments online. When it comes to a SIPP pension, UK expats may view it as the favourable choice.
Tax Benefits (UK Residents Only)
Should you return to the UK and become a UK tax paying resident you can still contribute to your personal pension. You can pay up to 100% of your annual earnings into your SIPP each tax year, with a maximum SIPP contribution of £40,000. Pension tax relief is given at a rate of 20% (higher rate taxpayers can claim higher levels of tax relief via self-assessment).
Your employer can make contributions to your SIPP, as well as or instead of a workplace pension. These contributions count towards your annual allowance but are not limited by your income.
If you do not have any earnings in the tax year, you can still contribute up to £2,880 into your SIPP. If you have begun to drawdown income from your SIPP, you can contribute up to £4,000 per tax year.
Fees & Charges
SIPPs provide greater transparency for fees as these are confirmed and stated in your annual statements as physical costs. Traditional Personal Pensions normally have underlying management costs that are not extracted as a cost from your pension in a transparent manner but through a complex form of unit cancellation. We recently ran analysis on a policy that had a 4.5% charge through cancellation of units along with a 1% annual management fee and this was a traditional big named pension company. It is always good to run a cost analysis to check as, in most cases, the SIPPs we offer will be cheaper than your current arrangement.
Pros Of SIPP
- Online management available. This allows for stronger setup and management flexibility, as well as cost lowering.
- SIPPs are now a good option for those with fewer coins in their pension, thanks to lower fees when compared with a Personal pension, SSAS or Section32.
- More asset flexibility. This means more opportunities to invest in different types of assets, as well as more access to a larger number of funds.
Cons Of SIPP
- If you want to move away from wherever you’re currently holding your pension fund, exit fees are rare but they may be incurred.
- SIPPs are notoriously time-consuming if self-managing. This is because, if you want to make the most out of your SIPP, you need to be actively engaged with your investment choices‘ performance in order to nurture your pot.
- It’s crucial to be risk-aware, as well as experienced when self-managing. If things go wrong, they will go wrong – there is no room for recourse or refunds.
If you’re still wondering “What is a self-invested personal pension?” or have any more questions, then please get in touch with the FFCM team today, we will be able to give you guidance on your pension savings as a UK expat in the US.
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