SIPPs explained
Taking money from your pension
Once you reach the age of 55 you can start taking an income from your SIPP, or you can choose to keep your money invested and continue to contribute to your pension pot. If you need to take an income or need access to the money in your pension, you can choose any, or a combination, of the below options.
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If you don’t need a secure, regular income then you can continue to manage your pension fund and draw a variable income (within certain limits) directly from the SIPP. You will continue to make all investment decisions and the value of your SIPP will rise and fall depending on the performance of your investments.
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You can take a one-off payment from your pension or a series of lump sums, keeping the remainder of your pension invested. The first 25% is tax-free, with the remainder subject to tax at your usual rate of income tax.
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An annuity converts your pension fund into a regular, secure income payable for the rest of your life. Choosing an annuity is an important decision to get right as, once you’ve signed up, it can’t be stopped or changed.
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While you can generally take 25% of your SIPP as a tax-free lump sum, please be aware that this is capped by the lump sum allowance, which is currently £268,275.
There is also the lump sum and death benefit allowance, currently £1,073,100. This puts a limit on the tax-free lump sums that can be paid on your death. (Note that this is reduced by any tax-free lump sums you take during your lifetime).
However, as of 6 April 2024, there are no limits on how much of your SIPP you can convert to income drawdown or an annuity, whether during your lifetime or on death.
Tax Relief
General Tax Relief:
You can receive up to 45% tax relief on your pension contributions. For Scottish taxpayers, this can be up to 48%.
HMRC Contribution:
HMRC will add 20% in tax relief. For example, if you contribute £8,000 to your SIPP, HMRC will add an extra £2,000, making the total contribution £10,000.
Higher Rate Taxpayers:
If you pay 40% income tax, you can claim back an additional 20% on your tax return.
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If you pay tax at a higher rate than basic tax rate you can claim any further tax relief to which you are entitled via self-assessment. If you are a Scottish or Welsh taxpayer and you pay tax at a rate higher than basic rate, you will be entitled to claim further tax relief at that higher rate. If you pay tax at lower than the basic rate of tax you will still be entitled to receive tax relief at the basic rate.
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If funds are credited to your SIPP on or before the 5th of the month, we’ll reclaim the basic-rate tax relief from HMRC and pay it as cash into your SIPP account on the 25th of the following month (this date is subject to weekends/bank holidays).
For example, if we receive your contribution on the 1st April, we’ll pay the tax reclaim into your account on the 25th May. However, if we receive your contribution on the 6th April, we’ll pay your tax reclaim on the 25th June.
Interest rates
The Self-Invested Personal Pension (SIPP) will pay interest on any cash balance of £1 or above held in the account. Interest is calculated daily and paid gross annually in March. The interest rate payable on our Self-Invested Personal Pension (SIPP) is variable at 3.55% (Gross/AER).
The current rates that are applicable are shown below.
SIPP interest rates
|
Balance |
Interest Rate (Gross)/AER |
Date Effective |
|---|---|---|
|
Balance £1 and above |
Interest Rate (Gross)/AER 3.55% |
Date Effective 31/08/2023 |
|
Balance £1 and above |
Interest Rate (Gross)/AER 2.65% |
Date Effective 23/03/2023 |
|
Balance £1 and above |
Interest Rate (Gross)/AER 2.45% |
Date Effective 19/01/2023 |
|
Balance £1 and above |
Interest Rate (Gross)/AER 1.30% |
Date Effective 07/10/2022 |
Interest rates are subject to variation. The amount you receive may change depending on the interest rate IWeb Share Dealing receives on the cash balances we hold across all accounts and market rates.
The rates we receive can be above or below the prevailing base rate for cash held within your SIPP. We use any payments received to pay you interest at the rates shown on our website. We may retain the amount received above these rates to keep costs low.
There is currently no requirement for you to hold a minimum amount in cash, although you should ensure that there is sufficient cash held to cover charges when they are due for payment.
AER (Annual Equivalent Rate) - this illustrates what the interest rate would be if interest was paid and compounded once each year.
Gross rate means we will not deduct tax from the interest we pay on money in your account. It’s your responsibility to pay any tax you may owe to HM Revenue and Customs (HMRC).
Understanding the risks
The main aim of any pension scheme is to provide you with an income during retirement. There are three areas in which your decisions will affect the benefits you are able to receive from your SIPP.
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By transferring benefits into your SIPP from another pension provider, you may give up the right to guarantees over the kind of benefits, the amount you will receive and the level of increases that will be applied to your pension in future. Your existing pension provider may apply a penalty, or other reduction in the value of your benefits, if it is transferred. There is no guarantee that you will be able to match the benefits that you give up by transferring into a SIPP.
If you are in any doubt about the benefit of transferring, we recommend that you take advice from a suitably qualified, professional adviser before arranging the transfer.
Your benefits will be affected by the level of contributions paid to your SIPP now and in the future. You may benefit less from investment growth if you delay the payment of contributions to your SIPP.
If you have a smaller SIPP, it’s important to be aware that administration fees may result in costs being disproportionate to the value of your SIPP.
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Most experts will tell you not to keep all your eggs in one basket, this is good advice as it’ll help you to reduce your risk. You'll be able to deal in a range of investments each of which carries a different type and level of risk.
All investments involve a degree of risk. The value of the investments in your SIPP can fall as well as rise and you may not get back the full amount that you invested.
It's extremely important to fully research stocks using sites such as our Shares Centre which gives trading news and recent trade values/amounts. Whilst research is important, do remember that past performance is no guarantee of future results.
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If you start to take benefits earlier than you originally intended, the level of the benefits you can take may be lower than expected and may not meet your needs in retirement.
While you can generally take 25% of your SIPP as a tax-free lump sum, please be aware that this is capped by the lump sum allowance, which is currently £268,275. If you take income withdrawals this may erode the capital value of your fund. If investment returns are poor and a high level of income is taken this will result in your SIPP falling in value and could result in a lower income than anticipated in the future.
If you choose an annuity to provide your benefits, the level of income you receive is based upon the average life expectancy of someone of your age. When fixing annuity rates, providers take into account the fact that some people will die earlier than expected, effectively subsidising those who live longer. Income withdrawals paid from the SIPP do not have the benefit of such a subsidy.
There is no guarantee that annuity rates will improve in the future. If you choose to purchase an annuity, the level of pension you receive when you purchase the annuity may be less or greater than the pension previously being paid under income withdrawal and/or the annuity you could have purchased previously.
Having considered these risks, if you have any doubts about the suitability of the IWeb Share Dealing SIPP or you need advice, you must seek advice from a suitably qualified professional adviser.