Jersey is likely to see a raft of pension changes come into force in 2016, but that shouldn't stop people investing in a Self Invested Personal Pension (SIPP).
In fact, any changes that do occur in Jersey's pension marketplace are only likely to be more advantageous for SIPPs.
In the future you may be allowed to drawdown on your pension pot earlier or even drawdown the whole amount. There could also be a relaxation of the types of assets you're allowed in your pension pot, providing more opportunities for investment.
A Jersey SIPP is an approved pension, so should the Jersey pension rules change again, say in 5 to 10 years' time, and something better comes along you will be able to transfer out of a SIPP and into a new approved pension scheme without penalty.
SIPPS are available to Jersey tax payers as an alternative to traditional personal pension plans. And they're beneficial as pensions are still an area Jersey residents get tax relief on.
We are seeing a growing number of people taking advantage of SIPPS, particularly those who don't have the benefit of an employer with a workplace pension scheme in place.
They are also attractive to people with accounting and investment management experience as they enable you to look after your own pension fund and save premiums, costs and commissions.
The major benefits include:
Flexibility – premiums can be paid monthly, quarterly or as a lump sum, stopped or changed according to circumstances. You can also purchase an annuity or drawdown between the ages of 50 and 75.
Costs – costs are fully transparent, expenses can be controlled, and premiums paid into the SIPP are not reduced by commission or charges to your advisor.
Tax – there are many tax benefits to having a SIPP, including the ability to deduct your premiums from your taxable income (one of the few areas Jersey residents get income tax relief on under the 20% means 20% rule). Importantly, income received from a Jersey SIPP is Jersey tax free and any Jersey tax deducted at source can be reclaimed.
You can even transfer between approved schemes, although it is not currently possible to transfer out of an occupational pension scheme unless the relevant employment has ceased.
A list of permissible investments is given on the taxes website, but some exclusions include residential property, for example, and other items which might cause the Comptroller of Taxes to question whether the main purpose of the investment is to provide a pension. Normal investments in shares, bonds, unit trusts and so on are acceptable.
Other restrictions include:
The Jersey SIPP is prohibited from borrowing funds, for example, to take a mortgage in order to buy an investment property.
It is not permissible for the Jersey SIPP to own a property for the individual to reside there, as it cannot trade with or allow the use of the funds' assets by the owners of the company.
The owner cannot transfer shares that he currently owns in his own name into the Jersey SIPP without the need to sell and repurchase them using a stockbroker, as all contributions to these schemes must be in the form of cash.
The Jersey SIPP is prohibited from entering into any transaction with the owners, as directors or otherwise.
The flexibility, costs and tax benefits are making Jersey SIPPs an attractive proposition for residents looking at alternative ways in which to manage their pensions. Even if you have investment experience or are a qualified accountant, it is still worth speaking to a qualified adviser to guide you through the myriad ways a Jersey SIPP can help you plan for your future retirement.
Jersey SIPP facts
The Income Tax (Jersey) Law 1961 allows individuals to look after their own pension arrangements, rather than paying premiums to an insurance company and incurring the related costs and commissions.
The procedure involves setting up a dedicated investment holding company to hold the pension fund (a Self Investment Personal Pension company). The individual, who is responsible for the running of the company, may hold the position of director and can appoint their own investment advisor. A separate company secretary must be appointed.
Premiums, in the form of cash payments, are made into the Jersey SIPP. These reduce income for personal tax purposes, up to the limits prescribed by the Jersey Income Tax Law. At present these limits are the lower of £50,000 or the individual's relevant earnings. Additional restrictions apply if your earnings exceed £150,000 and in the event that they exceed £200,000 no relief will be given.
If you've been advised that a SIPP is right for you get in touch to find out how we can help.