Frequently Asked Questions

We are constantly updating our questions and answers to ensure that we provide you with information to help you make your pension decisions.

Who can open a SIPP?

Rules on who can open a SIPP can vary from provider to provider but in simple terms anyone can have a SIPP who is resident in the UK. This applies to the Alliance Trust Savings Select SIPP and Full SIPP.

Who can pay into a SIPP?

A SIPP can receive contributions from the holder of the plan and a third party (often an employer). As well as employers other third parties can make contributions typically including partners, parents and grandparents. Contributions from employers will be made on a gross basis whereas all other contributions are paid net of basic rate tax.

How does tax relief work?

If you have a SIPP, contributions are paid net of basic rate tax.
The table below demonstrates how this works:

You pay	HMRC adds basic rate tax relief	Gross payment to your plan	What you can claim back if you're a high rate tax payer (dependent on income)	True cost of your original payment
£80	£20	£100	£20	£60
£8,000	£2,000	£10,000	£2,000	£6,000
£40,000	£10,000	£50,000	£10,000	£30,000

Based on Alliance Trusts Savings understanding at 6 April 2012

When you make a personal pension contribution this will be applied to your pension net of basic rate tax. We will then reclaim basic rate tax relief on your behalf from HMRC and credit this to your pension when received. This can take up to 12 weeks depending on when your contribution is paid.

How do I claim higher rate tax relief on my contributions?

We claim basic rate tax relief on your behalf. If you are a higher rate taxpayer you may be able to claim back higher rate relief via your self assessment tax return.

How much can I pay into a SIPP?

A SIPP works in the same way as other Personal Pension plans in terms of the maximum contributions allowed and there is no maximum on how much you can contribute. There is a maximum in terms of how much of your contribute and receive tax relief – known as your annual allowance. If you are a UK resident and under age 75 you may receive tax relief on your contributions. Tax relief is limited up to:

The lower of £50,000 or 100% of your UK taxable earnings, and:
£3,600.00 if you have no earnings

Can I transfer pensions from other pension schemes?

Yes, if you have other personal pensions or occupational pension schemes you can transfer these pensions into your SIPP.

Before you do this, you should ensure that you are not losing any benefits such as guaranteed annuity rates. You may wish to seek professional advice before making this decision.

What are my investment options?

The investment options available within a SIPP will differ from provider to provider. Some will offer a defined range of investments from the list of permissible investments (as governed by HMRC) while others will offer most if not all permissible investments.

With Alliance Trust Savings you have the best of both worlds. Our Select SIPP offers a more guided range of investments from our i.nvest platform while still offering access to over 25,000 investments, including access to 21 exchanges in 18 countries, whereas our Full SIPP will allow most HMRC permissible investments including unquoted equities and commercial property.

When can I take income from my SIPP?

Income can be taken from age 55.

How much can I take as a tax free lump sum?

Normally you can take up to a maximum of 25% of your pension fund as a tax free lump sum. Prior to 6 April 2011 you had to take any tax free lump sum entitlement prior to your 75th birthday. From 6 April this rule no longer applies meaning you can take your tax free lump sum entitlement after age 75 if you wish.

How much income can I take from my pension?

The amount you can withdraw per annum depends on whether you qualify for Capped Drawdown or Flexible Drawdown. To qualify for Flexible Drawdown you have to be in receipt of a secured lifetime pension income of £20,000 per annum. To find out what pension income sources qualify for the £20,000 minimum income retirement and more details about your retirement options please read our Taking Pensions Benefits guide

If you do not qualify for Flexible Drawdown you can still draw an income from your pension via Capped Drawdown. The maximum income you can take depends on:

Your age
Your gender
The Gilt Index Yield at the reference date
Government Actuaries Department annuity rate
Fund value.

These factors are set by HMRC.

How can I take my pension benefits?

The minimum age for taking your pension benefits is 55. When you reach this age and decide to take your benefits, there are two options available to you:

Purchase an annuity

There are various types of annuity available with a multitude of options – if you are unsure which one is best for you, please seek professional advice.
Income Withdrawal – (via Capped Drawdown or Flexible Drawdown) – this allows you to take income as and when you require it. Both of these options allow you to take up to 25% of your pension fund as a tax free lump sum (if you want to take any tax free lump sums, however they differ in terms of flexibility and how you will receive your future income.

	*Conventional Annuity (single life, level)	Income Withdrawal (Drawdown Pension or Flexible Drawdown)
Tax free lump sum payment of up to 25%
Tax free lump sum payment of up to 25% but with no regular income
Retain investment control
Ability for income to increase
Income cannot fall
Option to reverse you decision at a later date (i.e. if you move into income withdrawal can you annuitise at a later date and vice versa)
Death Benefits

* Other types of annuities are available.

If you are unsure of what option would best suit your needs you should consult a financial adviser who will be able to explain the risks and benefits of both options.

What is the Lifetime Allowance?

There is a limit on the value of retirement benefits that you can draw from your pension. This limit is known as the 'Lifetime Allowance' and applies to all approved pension schemes, including SIPPs.

The Lifetime Allowance from 2012/13 is £1.5m.

At the time of payment, a 'recovery charge' will be applied to the value of retirement benefits in excess of the Lifetime Allowance. If you take the excess amount in the form of an income then this is subject to a tax charge of 25% whereas if you take the excess as a lump sum then this is subject to a tax charge of 55%.

Can I make a contribution using employee shares?

If you are part of a share scheme recognised and approved by HMRC, you may be able to transfer shares you have acquired through that scheme into your Select or Full SIPP.

Shares can be transferred from an HMRC approved:

Savings related share option scheme
Profit sharing scheme
Share incentive plan

Risk warning

Please remember the value of your investments and any income from them can go down as well as up and you may get back less than the amount you originally invested. Tax rules may change in the future and taxation will depend on your personal circumstances. All investments carry an element of risk, which may differ significantly. If you are unsure as to the suitability of any particular investments, you should seek professional financial advice. Foreign markets will involve different risks than UK markets. In some cases risks will be greater. The potential for profit or loss from transactions on foreign markets or in foreign currency denominated markets will be affected by fluctuations in foreign exchange rates.