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SIPPs
Self Invested Personal Pensions
A commonsense way to build a pension
Contents

4 SIPPs: Whats all the fuss about? Recent awards include:

5 More about the investments Gold Standard for Individual

Pensions 2013-2016
7 For whom are SIPPs designed? Gold Standard Awards

8 What are the tax advantages?

9 What are the eligibility and Best Low-Cost

investment limits? SIPP Provider
2016
10 What happens to a SIPP when an Investors Chronicle
investor dies?

11 How much and where to invest? Best SIPP Provider

2007-2016
12 What are the options at What Investment
Best SIPP Provider - Hargreaves Lansdown
retirement? 2007 - 2016 Best SIPP Provider -
Readers Award
Hargreaves Lansdown
2007 - 2016

14 Conclusion

15 Important investment notes

Gold Standard for
Retirement 2014-2016
Gold Standard Awards

Best Direct SIPP

Provider 2013, 2014
& 2016
Your Money

Best Investment
Platform 2016
Online Personal
Wealth Awards
2
SIPPs: A DIY investors dream pension
An estimated one million people have a SIPP
(Self Invested Personal Pension) and there is
no sign of demand slowing.
The most obvious reason for their popularity
is in the name: self invested. They
give investors access to a huge range of
investments so they can run their pension
themselves. For many people their pension
will be their second most valuable asset after
their house; so this freedom really matters.
Recent rule changes have also helped. The
pension freedoms which took effect in April
2015 have made pensions more attractive.
Investors now have total freedom over how
they take their money, although a pension
can still only be accessed from age 55 (57 from
2028). They can withdraw what they like, up
to 25% usually tax free and the rest taxed as
income. When they die, any money can also
be passed on to their beneficiaries, potentially
without a tax charge.
Technology has also been a key factor. Many
SIPPs were launched in the 21st century,
so have been designed with the internet in
mind. Online tools have helped make them
attractive to people who are comfortable
making their own investment decisions.
There are two ways to start a SIPP:
1. New contributions (such as monthly
payments and one-off lump sums) which
attract tax relief at up to 45% depending
on personal circumstances.
2. Transfers from other pensions which
allow investors to move away from
outdated arrangements or consolidate
numerous plans under one roof.
With an age of austerity in public spending
upon us and fewer private companies
providing final salary pensions, individuals
will increasingly be required to make their
own retirement provision. We believe SIPPs
could be the most attractive option for many.
This guide explains the pros and cons of
SIPPs in plain English and indicates who
can prosper and who may be more suited to
a stakeholder or other type of pension. We
hope you find it useful and if it raises any
questions please do not hesitate to contact
our Pensions Helpdesk on 0117 980 9926.
One of our specialists will be delighted to
assist you. Please note tax rules can change.
3
SIPPs: Whats all the fuss about?

A SIPP works in much the same way as any

other personal or stakeholder pension, in
terms of tax benefits, contribution limits
and retirement options. An investor makes
contributions, the government adds basic-
rate tax relief and the investor can claim any
higher or additional-rate relief via their tax
return.

The contributions are left to grow and then,

at any point from age 55 (57 from 2028), up
to 25% can usually be taken tax free with the
rest taxed as income. There are no withdrawal
limits so an investor can draw from their
pension what they like.

The main aspect in which SIPPs are generally
superior to personal and stakeholder plans is
in their investment choice.
Stakeholder pensions have low charges,
but tend to offer a limited choice of funds.
Traditional personal pensions, meanwhile,
tend to offer wider choice between a dozen
and several hundred funds but can carry
hefty charges, particularly on older plans.
Both types are usually run by insurance
companies, which generally only offer their
own funds or a limited selection from other
fund managers. The drawback is while a
single company may have expertise in one
area, it is unlikely this will be the case across
all fund sectors.
SIPPs can offer the widest possible choice
of investments, allowing investors to pick
funds from across the market. They could
choose a top UK smaller companies fund
run by investment house A, a leading US
manager at investment house B and a top
fixed income manager at investment house C.
Not all funds available in a SIPP will be good
investors have to look for the best. With a
personal pension, they would probably have
to choose from the investments offered by
that particular pension provider. Some of the
funds offered may be good, but it is unlikely
that all of them will be.
A good way to think of a SIPP is as a shopping
trolley into which you can place many
different types of investment, including
funds, shares, bonds, gilts, futures and
options, commercial property and more. The
SIPP itself is merely a tax-efficient wrapper
around them.

4
More about the investments

Personal/
Stakeholder SIPP
Pension

A personal pension usually offers a limited A SIPP offers a wide variety of different
selection of investment funds run by the investments, from a wide range of providers.
pension provider.

What are the investment options? Personal Pension SIPP

Collective Investment Funds:
Unit trusts 5 3
Investment trusts 5 3
OEICs (Open Ended Investment Companies) 5 3
Exchange Traded Funds (ETFs) 5 3
Insurance company funds and their range of 3 3
funds run by other managers
Stocks and Shares:
Individual UK equities 5 3
Overseas equities, eg US or European shares 5 3
UK Gilts 5 3
Bonds and other fixed interest securities 5 3
Futures and options 5 3
PIBS - Permanent interest bearing shares 5 3
Some of the other investments include:
Cash and deposit 3 3
Traded Endowment Plans 5 3
Commercial property and land 5 3
Loans 5 3

The value of all investments can fall as well as rise so investors could make a loss.

5
More about the investments
Collective investments are extremely popular
and include unit trusts, investment trusts,
OEICs and insurance company funds.
Together they make up a range of thousands
of different investment funds, offered by
hundreds of different fund managers and
insurers. Some invest widely around the
world and across different types of asset,
while others are more specialised, focusing
on a particular region or type of share.
Investors can also hold individual UK and
overseas stocks and shares, as well as UK
gilts, corporate bonds and other fixed interest
securities. Even futures and options can be
included.
6
Whilst waiting to make an investment
decision, cash can be held in a SIPP. Indeed
some SIPP investors are happy with cash in
the knowledge they have obtained tax relief.
In summary, a SIPP facilitates investment
across a whole spectrum. Some providers
allow any permitted investments, including
commercial property, which often means
higher charges. Other providers offer fewer
investments, but these SIPPs tend to have
lower charges.
Remember investments should be held for
the long term as they do fall as well as rise in
value. This means an investor could get back
less than they invested.
For whom are SIPPs designed?
SIPPs arent for everyone. Some investors
do not require the huge investment choice,
others may have adequate pension provision
through their employer. Flexibility and broad
investment choice are particular attractions
for those taking responsibility for and control
of their pension.
Investors starting a personal pension should
look at all the options.
If investment choice and flexibility are not
important, and contributions are going to
be low, a stakeholder pension could be a
cheaper and better option than a SIPP. If
access to the best fund managers in the
market is important, a low-cost SIPP may be
a better choice. Investors who want to invest
directly in commercial property or more
exotic investments may have to consider a
more expensive SIPP.
Investors choosing a SIPP should have the
desire and confidence to take control and
make investment decisions. Anyone with a
personal or stakeholder pension should in
any case regularly review their arrangements,
although few people do.
Transferring to a SIPP is not difficult. People
regularly change their car insurer or mortgage
provider. Few, however, take the trouble to
re-examine their pension. Some old personal
pension arrangements have cripplingly
high fees. They sometimes suffer poor fund
performance. However, before transferring,
investors should ensure they will benefit
from doing so, and check they will not incur
excessive penalties or lose guarantees or
other valuable benefits.
Most pension plans are provided by insurance
companies, which generally do not have the
best record for investment performance.
There are exceptions. The most talented
fund managers tend to work for dedicated
investment companies, and these are where
most of the top performing funds can be
found, although past performance is not a
guide to the future.
For investors who wish to take control of their
pension arrangements, SIPPs offer access to
the funds of specialist investment companies.
Certain SIPPs, such as those offering
investment in commercial property, may be
expensive, but low-cost SIPPs can represent
excellent value depending on the size of the
fund and the investments chosen. Low-cost
SIPPs may not include investments such as
commercial property.
Anyone with any doubts about the suitability
of a SIPP for their personal circumstances
should seek personal advice.
7
What are the tax advantages?

SIPPs have the same tax benefits as other

personal pensions, including basic-rate tax
relief added by the government for personal
contributions. This boosts any contributions
made.

For every 80p an investor pays into a personal

pension, the government adds 20p, boosting
it to a gross contribution of 1. This basic-rate
tax relief is claimed by the pension provider,
and added to the pension automatically.
Every UK resident under 75 qualifies for
this tax relief, even children and other non-
taxpayers. Higher-rate taxpayers enjoy even
greater tax relief, as they can claim back up
to a further 20p of every 1 gross contribution
through their tax return or local tax office. In addition to the up-front tax relief, the
Additional-rate taxpayers can claim back up investments within a SIPP can grow free of
to a further 25p of every 1 gross contribution. UK capital gains and income taxes.

This means, for example, a 10,000 contribution
would ultimately cost 8,000 for a basic-rate
taxpayer, from as little as 6,000 for a higher-
rate taxpayer and from as little as 5,500 for an
additional-rate taxpayer. Sufficient tax must be
paid at the higher/additional rate to claim the
full relief at these rates.
Employer contributions are paid gross.
However, if an employer pension contribution
ranks as a valid business expense, it can
be offset against the taxable profits of the
business. Any contribution an employer
pays should not count as a taxable benefit so
should not be liable to income tax or National
Insurance.
From age 55 (57 from 2028) withdrawals can
be made from a SIPP, up to 25% usually tax
free with the rest taxed as income. Money left
in a SIPP when an investor dies can usually
be passed to their heirs with no inheritance
tax. Any withdrawals they then make should
also be tax free if death occurred before age
75, otherwise it will be taxed as their income.
Information in this guide is based on our
understanding of current pension and tax
rules, which can change. The value of tax
benefits depends on personal circumstances.

8
What are the eligibility & investment limits?
Everyone under 75 in the UK is eligible to start
and contribute to a SIPP. There are no age
limits for transferring other pensions.
To benefit from tax relief on contributions,
an investor needs to be resident in the UK, or
have relevant UK earnings. Crown servants
serving overseas and their husbands, wives
and civil partners could also benefit. Non-UK
residents could benefit from tax relief if they
contribute within 5 tax years of the tax year
they ceased to be UK resident to a pension
they started when they were UK resident.
Anyone who meets these basic requirements
can pay in at least 2,880 per tax year, which
with basic-rate tax relief is boosted to 3,600,
whether they pay tax or not. This means
children, retired people and non-working
carers or parents can build up a pension pot.
Many people will be able to pay in more.
Tax relief will only be given on the higher of
3,600 or an amount up to 100% of relevant
UK earnings where this is a personal
contribution. Generally this is earnings from
employment or self employment.
Each year there is an annual allowance on
contributions. This tax year it is 40,000
for most people, although there are two
exceptions:
Investors with adjusted income over
150,000 could have a lower annual
allowance. Broadly, this is your total
income plus the value of any employer
pension contributions.
A lower limit on contributions to money
purchase pensions, 4,000, also applies to
some people who have accessed a pension.
For details on the exceptions, request
our annual allowance factsheet: call
0117 980 9926 or visit
www.hl.co.uk/annual-allowance
Where total contributions (personal,
employer and the value of benefits being
built up in final salary schemes) exceed the
allowance the excess will normally be taxed.
There is a facility to potentially carry forward
any unused annual allowance from the three
previous tax years. To request a factsheet on
carry forward, call us on 0117 980 9926 or
visit www.hl.co.uk/carry-forward
There is also a lifetime allowance, currently
1 million. This applies to total pension
savings. If total pension benefits exceed the
lifetime allowance when they are taken or an
investor reaches age 75, the excess could be
hit with a lifetime allowance charge of up to
55%.
If an investor registered with HMRC for
protection against the lifetime allowance, in
some cases making further contributions will
mean this protection is lost.
9
What happens to a SIPP when an
investor dies?
When an investor starts a SIPP, they can
nominate a beneficiary. This is usually their
husband, wife or child, but can be anyone or
any number of people. A beneficiary can be
changed at any time in the future, usually by
writing to the SIPP provider.
When the investor dies, their SIPP will be
passed to their beneficiaries usually free of
inheritance tax.
If they died under 75, the beneficiary can
withdraw what they like without tax.
If they died when 75 or older, withdrawals
will be taxed as the beneficiarys income
(0%, 20%, 40% or 45%, depending on
their withdrawals and other income).
10
These rules were introduced in April 2015
and are a significant improvement. More
investors can now pass on more of their
pension when they die. The rules also open
up the possibility of pensions being used to
pass wealth through the family.
To find out more and request a copy of our
factsheet What happens to my pension when
I die?, call our Helpdesk on 0117 980 9926.
Remember, tax rules can change the exact
benefits depend on individual circumstances.
How much and where to invest?
HOW MUCH SHOULD AN INVESTOR
CONSIDER CONTRIBUTING?
This depends on personal circumstances. We
are unable to offer personal advice in this
guide, only general information, but those
who are unsure can contact us for advice.
As a rule of thumb, to retire at 65, an investor
should consider contributing an annual
percentage of their earnings equivalent to at
least half their age when they start saving.
If they start saving when 20, for example,
they should consider putting aside at least
10% of salary until retirement, while if they
start at 40, they should consider at least
20%; either as annual lump sums or regular
monthly savings. This percentage should
also be maintained as earnings increase. The
interactive pension calculator on our website
may be helpful: www.hl.co.uk/calculator
The value of investments can fall as well as
rise so an investor could get back less than
they invest.
HOW MIGHT A SIPP BE INVESTED?
Once an investor has started a pension, they
are one step ahead of many people. However,
it is easy to fall at the next hurdle: choosing a
pension investment. Those who do take that
important step of starting a pension often
fail to take account of where it is invested,
and sometimes end up in a mediocre default
fund managed by an insurance company. In
truth, however, the performance of pension
investments can have a substantial effect on
affluence in retirement.
As an investor starts to approach retirement,
investment strategy will depend on how they
plan to draw their pension. For some this may
mean moving into less risky funds; for others
it may mean switching into income-producing
funds in anticipation of drawing this income
directly from the pension through drawdown.
A SIPP gives an investor the flexibility to
manage this transition as they see fit, giving
access to equity income funds, fixed interest
funds, conservative funds and cash, among
other options, which could be used in the lead
up to retirement.
11
What are the options at retirement?
Rules which took effect in April 2015 mean
investors now have more freedom than ever
when deciding how to take their pension.
SIPP investors, like other personal pension
savers, can normally only start making
withdrawals from age 55 (57 from 2028). Up to
25% is usually tax free with the rest taxed as
income.
There is no upper age by which retirement
benefits have to be taken and therefore no
requirement to take retirement benefits at all,
should an investor wish to keep their pension
invested.
What you do with your pension is an
important decision. Therefore, we strongly
recommend you understand your options
and check your chosen option is suitable for
your circumstances: take appropriate advice
or guidance if you are at all unsure.
Pension Wise, the Governments pension
guidance service, provides a free impartial
service to help you understand your options
at retirement. You can access the service
online at www.pensionwise.gov.uk, by
calling 0800 138 3944 or face to face.
This guide is not personal advice. We offer a
range of information to help you plan your
own finances and personal financial advice
if requested.
12
THE OPTIONS
Annuities
An annuity is one of the few ways of providing
a secure income in exchange for the pension
fund. It provides a guaranteed income for
life, no matter how long the investor lives. Of
the fund used to purchase an annuity, up to
25% can usually be paid as a tax-free lump
sum with the rest taxed as regular income.
The investor can choose whether the taxable
income should be fixed, increase by a set
percentage over time or track inflation. They
may also qualify for enhanced rates due to
certain health conditions or lifestyle factors.
The annuity can continue to support
beneficiaries after the investor dies (joint
life annuity) or stop on death (single life
annuity). It is also possible to guarantee the
annuity for a minimum length of time (for
example for 5, 10 or even 30 years). So, if the
investor dies within this time, the income will
continue to be paid to their estate, or to the
beneficiaries nominated, for the remainder of
the guarantee period.
It is worth noting that once the annuity is set
up, the options originally selected cannot
normally be changed and any change in the
investors health cannot be used to enhance
the annuity in the future.
Drawdown
Drawdown allows an investor to take their tax-
free cash and keep the fund invested, while
drawing income directly from the fund. It is
more complex and higher risk than an annuity.
Of the funds moved into drawdown, up to 25%
can usually be paid as a tax-free lump sum.
The investor chooses where to invest, and the
fund value will rise and fall depending on
investment performance. They can choose how
much income to take from nothing to their
whole fund and should remember withdrawals
will be taxed. However, with this increased
flexibility comes increased risk. Income is not
secure, so poor investment performance or
large income withdrawals will erode the funds
value over time. In the worst case scenario this
could completely deplete the fund. Whatever
income is chosen, the investor needs to satisfy
themselves the income will be sustainable for as
long as they need it to last, and the investment
strategy is compatible with this.
The death benefits under drawdown are
generally more favourable than under an
annuity, simply because no one-off decisions
need to be made before applying. Drawdown
pension wealth can be inherited by any
nominated beneficiary and can normally be
withdrawn tax free if the original investor died
before age 75, or subject to income tax if after.
Drawdown investors can usually nominate
a beneficiary or beneficiaries to pass their
pension to if they die and can change this
nomination at any time.
Take a lump sum directly Uncrystallised
Funds Pension Lump Sum (UFPLS)
This option was introduced in April 2015 and
allows periodic lump sums to be taken directly
from a SIPP without having to go into drawdown.
Each time an UFPLS is taken, 25% of the lump
sum will usually be tax free and the rest taxed
as income. Deciding whether to withdraw
income over time rather than in one go is an
important consideration, and can affect the
amount of tax paid.
The remaining pension stays invested, so the
fund value and future income is not secure.
Keeping the fund invested does create potential
for growth, however, taking lump sums out will
reduce what is left to provide income in the
future, particularly if the investments perform
badly or if too much is drawn.
Mix and match
There is no requirement to take a pension all
in one go, so investors do not need to make
a single choice between these options. They
could decide on a mixture, for example using
some of a pension to cover essential living costs
through an annuity, and using the remainder to
provide a flexible income to support this.
13
Give a pension the attention it deserves

No-one should care more about your
retirement planning than you.
A SIPP is a genuine enabler: it requires
choices but this need not be daunting. It takes
a little work and some monitoring but this
is your money.
A pension is likely to be an investors most
valuable asset after their home in some
cases the most valuable. It deserves attention.
Investors who do not want to take control
themselves should seek personal advice. To
find out more, call our Pensions Helpdesk on
0117 980 9926.

A SIPP gives access to the top fund managers,

and the power to change investments at any
time. Best of all, SIPPs need not be expensive.
Low-cost SIPPs herald a new chapter in
pension investing they grant access to
a wide range of investments without high
charges.

14
Important investment notes

This guide is for your information only and
is not personal advice. It is based on our
understanding of legislation at 6 April 2017,
which could change. Unless stated otherwise,
all figures apply to the 2017/18 tax year.
If you are unsure a particular course of action
is suitable for your circumstances, you should
seek personal financial advice contact us
and we can put you in touch with a financial
adviser. Investments fall in value as well as
rise so you may get back less than you invest.
Neither capital nor income is guaranteed. Tax
treatment can change and depends on your
individual circumstances.
Before you transfer a pension please ensure
you understand how the transfer will be
made. Unless otherwise agreed the transfer
will be made as cash and you will be out of
the market while the transfer takes place. This
may work in your favour if the market falls,
but if it rises you will not benefit from any
growth while you hold cash. Some pension
companies levy exit fees or a Market Value
Reduction (MVR). You should also check you
will not lose a valuable guaranteed annuity
rate, guaranteed investment return or any
other benefit. Please make sure you will
benefit from transferring.

This guide is issued by Hargreaves Lansdown Asset Management

If you do not need the flexibility of a SIPP, you
Limited. Authorised and Regulated by the Financial Conduct
might consider a stakeholder pension. If you Authority (FCA register number 115248, see www.fca.org.uk/register
have access to an employers pension scheme for registration). It may not be reproduced without permission.

you should always consider that first.

Please remember pensions are long-term

investments to fund your retirement; you
cannot normally access your money until age
55 (57 from 2028), up to 25% usually tax free
and the rest taxed as income.

Most people can contribute as much as

they earn to pensions. A 40,000 annual
allowance also applies, although this can be
as low as 10,000 for some high earners with
adjusted income over 150,000 and 4,000
for some people who have flexibly accessed
a pension. The lifetime allowance is 1m.
These limits can be affected by other factors
contact us for details.

15
Contact us

0117 980 9926

sipp@hl.co.uk

www.hl.co.uk

Hargreaves Lansdown, One College Square South,

Anchor Road, Bristol, BS1 5HL

Hargreaves Lansdown Asset Management Ltd, One College Square South, Anchor Road, Bristol, BS1 5HL. 0417
Authorised and regulated by the Financial Conduct Authority

16 Enquiries: 0117 980 9926