Why are pension still important for savers?

With the recently proposed changes to Inheritance Tax rules around pension scheme death benefits, there are still plenty of reasons to save using a pension, whilst also making the most of the additional benefits a self invested pension can provide. 

A pension is a long-term savings plan, and it is worth understanding the benefits of saving for retirement, as the State Pension alone may not be sufficient to provide the standard of living you hope for when you retire. Pensions still continue to offer a very tax-efficient way to save. 

Why might you want to save into a self invested pension?

Tax relief on member pension contributions

To help you save for your retirement, the UK Government will apply to the amount of your pension contribution each time you contribute personally. There are HM Revenue & Customs (HMRC) limits on tax-relievable contributions. 

• Basic-rate tax payers example
  
  If you are a basic-rate tax payer, the Government adds 20% of the gross amount of your pension contribution.
  
  For example, if you wanted to make a gross member pension contribution of £3,600, you would pay £2,880, and the Government would add £720 in pension tax-relief i.e. 20% of £3,600 is added-in by the Government. So, the net cost to you of a £3,600 contribution would be £2,880. 
  
  
• Higher and additional-rate tax payers
  
  If you are a higher or additional-rate tax payer, you may be able to obtain additional pension tax relief through self-assessment.
  
  If you are an employee, your employer might pay pension contributions into a scheme on your behalf.
  
  Please see our page on pension contributions for more information

Tax-free growth

The returns on investments held within a SIPP are not normally taxed, thereby allowing the pension fund to potentially grow faster over time. There is no Capital Gains Tax and generally no Income Tax paid on the investments.

Wide range of investment choices

When it comes to selecting the investments for your pension fund, a SIPP can generally allow you to select from a wider range of investments than an insured personal pension might allow. 

Choosing investments that are right for you

It is easy with Dentons to start selecting investments that you feel will suit your retirement goals and sit within your appetite for attitude to risk and capacity for loss. Dentons offers two SIPPs: the full asset SIPP and a single investment portfolio SIPP. 

The full asset SIPP offers a wide range of investments and can hold multiple assets including stocks and shares (through discretionary, advisory and self-managed portfolios), commercial property, gold bullion, government bonds and many more.

Learn more about the full asset SIPP permitted assets.

Alternatively, the single portfolio SIPP allows a more straightforward option for an investment with a single investment manager or platform on Dentons’ pre-accepted list and where the portfolio does not include any non-standard funds and/or assets.

Learn more about the single portfolio SIPP permitted assets.

Accessing your pension

Unless you are in poor health, or have a protected pension age within your scheme, you need to be at least age 55 before you can begin to take retirement benefits from your pension fund and this is rising to age 57 from 2028. Death benefits, however, are different and can be paid to your beneficiaries at any age after your death.

The amount of tax-free lump sum (also known as pension commencement lump sum) payable when you take retirement benefits will depend on your circumstances. For more information on this, please see our page on pension scheme benefit allowances or speak to your financial adviser if you have one.

Please note that Dentons does not provide annuities.

Learn more about pension benefit allowances

SIPPs can be portable

You may be able to transfer your personal pension plans or SIPPs from another provider to Dentons without losing the tax benefits. This could be helpful if you want to switch provider for reasons such as a wider choice of investment options and enhanced service.

The pension scheme remains a legally separate entity from you as an individual and/or your business.

Flexibility for beneficiaries

Upon your death, your beneficiaries can receive death benefit payments from your pension scheme, and they can choose how and when they want to take the funds - for example, as a lump sum and/or income payments. Benefits on the member’s death before their 75th birthday will normally be tax free in the hands of the beneficiaries. The beneficiary can elect to continue with the pension fund, benefiting from future tax-free growth which also provides them with a level of control to efficiently manage any lump sum and/or drawdown payments once they draw the benefits. 

Please note: Should a pension scheme member die before their 75th birthday, any subsequent lump sum payments to their beneficiaries will be tested against the deceased’s lump sum death benefit allowance (LSDBA). For more information on this, please see our page on pension scheme benefit allowances or speak to your financial adviser if you have one.

In summary, SIPPs can offer significant flexibility and tax advantages which can make them an attractive option for individuals, even in light of the proposed changes to the Inheritance Tax rules on pensions. Registered Pension Schemes still offer flexibility and significant tax benefits to both individuals and businesses when it comes to retirement planning.