Fancy a SIPP?

(This article is relevant for UK residents only)

As health and longevity continue to improve and people look to fund a longer life in retirement, it is inevitable that people will look for alternatives to the traditional personal pensions as the mainstay of retirement savings plans. In some cases, compromises are having to be made, as recent research has revealed that almost two million people in the UK are to postpone retirement over the course of the next decade, in a bid to build their pension pot even further.

As traditional pension funds continue to underperform, savers want to take control of their retirement money. As a result of legislative changes in the UK pension environment, individuals now have greater flexibility in how they plan for their retirement. As such, the demand for self invested personal pensions (SIPPs) has boomed and this demand is expected to increase further still, as more people are beginning to appreciate the huge financial advantages to these vehicles. Indeed, there is typically one common and over-riding reason for using a SIPP: you are hoping for better returns than you would achieve through the usual packaged pension product.

A SIPP is a specific type of personal pension which offers a wide choice of assets in which to invest, including stocks and shares, commercial property and cash, amongst others. SIPPs typically allow you to take full, active control of the underlying assets, or to appoint a discretionary investment manager to do this on your behalf. You may elect an investment manager to take advantage of their knowledge and expertise in investment management, to ensure your SIPP is carefully administered. Or you may not have the time to manage the SIPP yourself and simply need someone else to do the hard work for you. The added advantage of appointing a discretionary investment manager is that they may generate larger returns than you would yourself. To self-manage a SIPP, as with any important longer term investment, requires skill, experience and financial sophistication, given the scope of assets in which you can invest. But the complexity of SIPPs seems to have done little to stem their popularity, as they offer unrivalled flexibility and freedom in choosing and managing your own investments.

SIPPs also have compelling potential for tax and retirement planning, and this continues to develop. There are a number of special features associated with SIPPs, such as: availability of full tax relief on contributions, subject to the UK annual allowance; contributions paid net of basic tax relief at 20%; from the age of 50, a regular income can be taken from the fund while still being invested; growth is free from capital gains tax (CGT); and a tax-free lump sum of up to 25% of the SIPP’s value.

As with all investments, it is important to bear in mind there are restrictions and risks involved in investing in SIPPs; the key restrictions to consider are: the maximum annual contribution of £245,000, subject to current HMRC rules; residency and age restrictions; scheme rules may prevent or restrict withdrawal of capital; and higher rate tax relief must be claimed by self assessment. The decisions made concerning payments to, investments within and withdrawals from the SIPP will affect the benefits.

We, in conjunction with specialist pension providers in the UK, can arrange a SIPP structure for you through our Focus platform giving you access to a range of banking and investment services all within one account and under one roof. The main advantage of including your SIPP within our Focus platform is that you can save time and simplify your administration. Additionally, through our online banking system you can view your SIPP online, to allow you to monitor the progress of your SIPP investment on a real-time basis. By investing with Fairbairn Private Bank you have the option of self-managing your SIPP or employing our discretionary investment management services to manage the SIPP for you.

Our discretionary investment management services combine our experience and understanding of our clients' needs, to construct innovative services which are highly adaptable and uniquely positioned. Your SIPP would be managed by us within a risk and return controlled portfolio, to an agreed level of risk you are comfortable with. We understand that your overriding expectation is the delivery of investment performance. To help demonstrate the successful performance of our discretionary management services, our sterling low to medium risk portfolio achieved a gross return of 4.21% over the last three years (December 2006 to December 2009), as compared to the FTSE APCIMS industry benchmark of 1.90%*, over the same time frame (Source: Financial Express Analytics).

To find out more about this service and explore other options available, please contact your relationship manager directly or our client services team on +44 (0) 1624 645000.

The range of investments within a SIPP carry different types of risk. As with any investment, the price of, value of, or income from your investments can fall as well as rise and you may not get back the original amount invested. Past performance is not necessarily a guide to future performance and exchange rate changes may affect the value of your investments.

Please note that all figures quoted are correct at the time of writing (January 2010).

* The benchmark used is the FTSE APCIMS Balanced portfolio index – a multi-asset class benchmark widely used by investors to compare the performance of fund portfolios, and likewise fund managers. The benchmark is also commonly used by SIPP investors, to give them a useful perspective on the performance of a portfolio of risk assets and to calibrate the performance of their SIPP.

Fairbairn Private Bank © 2010.