Pensions in UK Wealth Planning

Faisal Sheikh

25 years: Wealth and risk management specialist

The provision of pension advice is probably the most complex area for wealth management firms and clients to get right. Navigating the world of pensions requires advice when initially setting up pension arrangements. as well as ongoing review and additional advice as rules change and the client's personal situations evolve. Join Faisal as he talks us through the more complex wrappers: Pensions

Wealth Management

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Pensions in UK Wealth Planning

7 mins 30 secs

Key learning objectives:

Understand the types of pensions available in the UK
Understand why Self-Invested Personal Pensions (SIPPs) are are a focus for wealth management firms

Overview:

There is a major incentive for high net worth individuals (HNWI) to invest in pensions, as tax relief is provided at the time of investment. Pensions investments are made gross of income tax, rather than net of income tax like other investment vehicles. This makes them a useful vehicle to help mitigate the higher tax brackets for high earners. There are multiple ways that pensions can be sourced, such as through the government/state, employers or private provisions sourced by the client themselves. Wealth managers focus mainly on the provision of private pensions, in the UK these are usually referred to as Self-Invested Personal Pensions (SIPPs).

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Summary

What is an occupational pension scheme?

A pension plan offered through employers who automatically enrol the employee in the pension scheme. There are two types of occupational pension, final salary (defined benefit scheme) or money purchase (defined contribution). Final salary pays a defined monthly income in retirement and is based on the length of membership in the scheme and earnings - not on investment performance. Money purchase schemes are focused on employee contributions and pay an income in retirement based on the amount paid into the scheme and investment performance over the life of the pension.

What is a SIPP?

A SIPP is a self-invested personal pension. A SIPP, is a UK government-approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of investment options approved by HMRC.

How does a SIPP work?

SIPPs are "tax wrappers", allowing tax rebates on contributions made, so investments are made gross of tax. This is done in exchange for accessibility. Unlike ISAs, VCTs and EISs, pension funds can’t be accessed until retirement or at least until the pension holder reaches 55 years of age.

The pension rules for SIPPs allow for a greater range of investments to be held than with other forms of pension schemes - notably equities and properties. Rules for contributions and benefit withdrawal are, however, the same as for other personal pension types.

Why has a SIPP traditionally been beneficial for high net worth clients?

Why are SIPPs a different proposition for younger generations?

There is also a cap on the total lifetime value of a SIPP, currently set at £1 million pounds. Both the annual limit and the lifetime limit have been subject to frequent revisions during the annual budget, and have been significantly reduced in recent years - lowering the appeal of SIPPs for new clients

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Faisal Sheikh

Faisal is a wealth management professional has spent almost 30 years working in the field of risk management, risk control, internal auditing in the financial services and public sector. Most recently, Faisal was the Head of Risk for the Wealth Management business of UBS in the UK. He has also extensive international experience across Europe, the Americas, Asia and Africa. He has also a served as CISI operational risk expert panel member.

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