The self-invested personal pension (or SIPP as it’s also known) is perfect for people who want more control over their retirement funds and investments.
Generally speaking, SIPPs are usually thought of as being for people with either large sums of money, or years of investing experience. However, although this used to be true, the fact that more providers than ever before are now offering SIPPs means that they’re changing and evolving, which is great news for amateur investors. Now, you can have as much or as little involvement as you like.
SIPPs pensions are not only great for you, but they also provide multiple benefits for your family. Here, we look at why.
What Happens to my Pension When I Die?
New death benefit rules announced in 2015 mean that you’re now provided far more flexibility over what happens to your pension when you pass away.
Under the new government rules, your pension can stay invested after your death, all while your beneficiaries can take as much money as they need through income drawdown.
This is a big change, as it means that the pension no longer falls into your or your spouse’s estate as part of Inheritance Tax, meaning that you (and they) could save on a tax bill while gaining access to the funds.
If you die before you reach 75 (god forbid), then your income is paid to them completely tax-free. If you die after this, it is taxed at the beneficiary’s marginal rate of Income Tax.
Plus, if your beneficiaries do not need any of the cash amount drawn down, your pension can remain invested. That way it can roll over for the next generation and become a very handy nest egg. As part of this, the money in the pension keeps its tax benefits indefinitely, so your grandchildren or great grandchildren will never be charged Inheritance Tax.
Do I Have this Option Now?
If you already have a pension, then you’ll have to check the terms and conditions that you signed when you took that pension out. Unless it’s a flexible access pension, then it’s unlikely that your beneficiaries will have the options listed above, but they may, so you’ll have to check the small print. If you still don’t fully understand, ring your provider.
Many SIPP providers, however, do offer these schemes, so if you’re looking to take out a SIPP pension, ensure that you ask about it. It could make a huge difference when it comes to an Inheritance Tax bill for your family.