The Executive SIPP
Top SIPP adviser Intelligent Pensions has launched a low cost SIPP plan aimed at high earning executives.
Minimum contributions are £10,000 p.a. or £1,000 per month, well below the market norm for SIPP arrangements.
The company’s new 'Executive SIPP' comes with a lean charging structure but offers exceptional added value.
Intelligent Pensions will design and manage 'bespoke' investment strategies based on individual risk profiles agreed
with each client.
With over 1,000 existing SIPP portfolios under management, Intelligent Pensions believes it is well placed to take
advantage of the new 'simplified' pension regime. Using its buying power, the company is able to access "institutional" pension funds normally only available to large occupational schemes. It already has over 10 leading
pension fund managers signed up for its new SIPP facility, offering a choice of well over 150 funds from which to structure individual portfolios.
With maximum annual management charges capped at 0.75% p.a., Intelligent Pensions claims to be able to offer
much better value for money than normal SIPPs which use ‘retail’ investment funds carrying charges as high as 2%
p.a.. As with all SIPPs, once the plan value is large enough to justify direct investment then further options become
available, such as commercial property or company shares.
In the meantime, the company provides an active asset allocation strategy geared to each member's personal risk
profile, with quarterly monitoring and annual reports.
Managing Director, Steve Patterson, says, "As a result of 'pension simplification', the limit on pension benefits is no
longer restricted in the same way as before. Previously, high earners were subject to an 'earnings cap' on the amount
of their earnings that could be pensioned through normal tax approved pension schemes. Any excess had to be
accumulated through less tax efficient 'unapproved' retirement benefit schemes which were either pre-funded (called
FURBs) or unfunded (called UURBs).
"Under the new regime, the limits are significantly more generous with up to £215,000 p.a. able to be invested each year up to an overall limit of £1.5m in the accumulated retirement fund. With our new Executive SIPP, we aim to fast track people to their optimum level and then give them maximum flexibility in accessing their benefits
thereafter."
Intelligent Pensions hopes employers will be happy to offer the Executive SIPP as an alternative pension option for
senior executives. Many large employers now only offer 'money purchase' style benefits either in the form of an occupational money purchase scheme or a group personal pension through an insurance company. These often have a relatively restricted choice of 'in house' funds and those that offer external fund links are relatively expensive. The
investment choice is normally left to the member, with no monitoring or ongoing advice.
Intelligent Pensions believes this 'one size' fits all approach will not meet the needs or wants of high powered executives who will expect and deserve a more sophisticated pension solution 'tailored' to their own personal needs.
The company is also a leading expert in the field of income drawdown and sees the flexibility of drawdown offering
the natural exit strategy for high earners, rather than annuities. The plan is split into 1,000 segments to allow benefits
to be phased. Following 'pensions simplification', members will be allowed to start drawing benefits without having to retire or leave employment.
"Up to 25% of the accumulated fund can be taken out as tax free lump sum as soon as the member reaches 50
although this goes up to age 55 after 2010," said Paterson. "The pension income itself can be deferred until later.
This can provide the opportunity for buying a holiday home or clearing off a mortgage. The remaining fund can
continue growing and receiving contributions as long as at least one segment remains unactivated."
Part of the company's service to high earners will be to monitor their benefits against the lifetime allowance. If
benefits ultimately exceed the £1.5m limit (which is to increase to £1.8m by 2010) a 25% tax penalty is applied to
the excess fund. The remaining pension will then be subject to further tax in the normal way creating an effective tax
rate of 55% on excess benefits.
"We can envisage circumstances in which we might advise clients to start drawing off some of their pension income
even while their employer continues to contribute," said Paterson. "Although they will pay tax at their top rate on the
pension income they would incur that tax at a later date anyway. The aim will be to avoid the 25% penalty tax. As there is no national insurance either on contributions or pension withdrawals, this could be more attractive than
receiving additional salary in lieu of further pension contributions to avoid the penalty charge.
"Big company schemes will not want the headache of administering this degree of complexity which is another
reason why our Executive SIPP should be an attractive vehicle for high earners."
Full details are available from the company by e-mail.