Why is it that self investment pension funds are becoming so attractive as a pension planning tool.
They simply offer great flexibility in terms of investment choice and as to when you can take your benefits so they give you the ability to control your own destiny.
Also they have considerable tax advantages as your investment grows free of Capital Gains Tax inside a SIPP.
If you die before you are able to take the benefits then the fund value is normally passed to your spouse or your heirs free of inheritance tax.
When you come to retirement you can usually take a tax free lump sum of 25% of the value of your fund.
Even people who are not earning can enjoy the same tax benefits if they wish to save for the pension income that they will need when they retire.
It does matter if they do not pay Income Tax as they will still receive all the same tax benefits including contributing 25% on top of the net payment made.
There are of course limits but a non tax payer and therby a non earner could make a payment of £2,880 and the government would pay £720 making a total gross contribution of £3,600. There are not many investments you can make where the government will add a healthy percentage.
There are also very many advantages for investing for Children and even Grand Children.
They can of course be used as a great planning tool for children or for grandchildren.
A contribution from a parent or a grand parent can make a very significant impact on their financial status in the future.
With the ever increasing rise in the proposed age of retirement what a great idea to being able to provide a personal pension fund that could provide a pension from the age of 55 as opposed to the intended increase to 68 and possibly 70 from the current age of 65.
This would be fantastic thing for any Grand parent to provide for a Grandchild.
The reason why it is such a good idea apart from the considerable Tax advantages is that it is well acknowledged that the earlier a pension contribution can be made the greater the ultimate fund that will be produced.
The idea behind providing money for a child or grandchild is that when they leave university or college they will probably be in debt with a student loan.
Their first employment may not pay so well until they are established and found their feet and that all takes a few years. Then they may want to get on the property ladder. Pension planning at this time will be one of their lowest priorities.
It is also a very clever but simple way to reduce the capital value of ones estate and at the same time pass money on to the next generation.
For one reason they will be unable to cash it in until they reach the age of 55 so the funds are safe and cannot be spent on a round the world trip or at a day at the races or even a trip to the casino.
A series of contributions of say £2,880 over a period of years and this could be invested monthly as to average out the effects of market movements could be invested in UK equity growth fund and with income re-invested would produce handsome returns in the years to come.
Just one contribution would boost the retirement pot at age 55 very considerably.
Imagine if this was made at the child's age of 10 then it would have some 45 years of growth and re-invested income.
If a series of payments were made then the funds available would be very considerable at age 55.
It is also possible for Spouses to invest in a SIPP.
Many non earners will have made some provision for their retirement perhaps before having a family when they were in employment. They may also have some tax efficient investments such as ISA's (Investment Savings Accounts) whilst some may be depending on their partners pension provisions.
In both of these examples self invested pension plans do have considerable benefits.They do provide useful tax advantages so even if you are using your allowances for an ISA you should also consider the pension allowances that are available.
If your partner starts a pension then this will provide them with additional security knowing that they will have their own and or an additional source of retirement income.
Also by investing in a SIPP it will provide the ability to be able to choose how their own pension is invested and at what age that they wish to perhaps draw an income.
Also higher rate tax payers will get relied at 40% (there are restrictions for high earners) which can give rise to a Paye Refund .
