How can I turn my SIPP into retirement income?
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I am the managing director of a small business and my business premises is part-owned by my SIPP – the other two directors also have SIPPs and we own a third each that way. I have just turned 65 and am thinking of retiring soon. What are my options for turning my SIPP into retirement income?
Matthew Beck of Smith & Pinching responds:
SIPPs – Self-Invested Personal Pensions – are popular with business owners as they do indeed allow your pension scheme to invest in your business premises. However, turning that into pension income at the point of retirement does pose some issues.
If I were to advise you on this, I would want to look at the entire picture of your long-term retirement planning. I would need to understand what you actually need to draw from your pension at each stage of retirement and we would need to consider your income and capital expense goals.
If you have other investment assets held in your SIPP, we would need to look at these and explore their potential liquidity. We should also take into account any income generated from the property – rent paid back to the SIPP, for example – to see if this can be used to provide your income. Adding a degree of diversification to your SIPP portfolio might help to deliver pension income at a future date.
This situation also makes me wonder if you and your fellow directors have an overall plan for the continuity of the business as each of you retires. Do you have any kind of shareholder agreement in place, for example, or succession plans that include selling your pension’s share of the property and/or the sale of your shares in the business? Clearly, both of these scenarios would generate capital – either inside or outside your pension – that might potentially be able to provide for your needs in retirement.
A further issue to consider is your potential future liability for Inheritance Tax (IHT). If your total assets exceed your expected IHT exemptions, planning now could potentially mitigate a future IHT bill for your estate.
I believe that you would benefit from some very specific financial planning both for yourself and for your business. It’s important to ensure that you can meet your personal financial goals in a tax-efficient way whilst allowing your business to continue beyond your retirement.
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Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk