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HD SIPP
The Risks
General
The HD SIPP is offered without pensions, tax or investment advice. A SIPP may not be suitable for all investors, and other forms of personal pension are available. If you require pensions, tax, or investment advice or have any doubts about the suitability of a SIPP, you should consult an appropriate qualified, Financial Services Authority (FSA) registered adviser.
The tax rules and governing law for SIPPs may change in the future.
The HD SIPP is a “money purchase” arrangement, which means that eventual benefits payable on retirement and/or death are based on the accumulated fund value, and prevailing annuity rates, both of which are not guaranteed. There are, therefore, no underlying guarantees of the level of benefits payable from the HD SIPP.
Specific risk factors to be aware of which may mean the retirement benefits paid are lower than anticipated are:
- A pension may be taken earlier than originally intended.
- Investment performance of the underlying assets may be worse than assumed.
- The value of an investment can go down as well as up, and you may not get back what you originally put in.
- It may take time to realise certain assets.
- Annuity rates, or the rate used to convert a SIPP fund into a pension income may be lower at retirement than at commencement.
- SIPP charges or charges on underlying assets may increase.
- Pension tax laws may change, reducing their favourable impact.
- High income withdrawals (unsecured pension) are unlikely to be sustainable without high investment performance.
- Under income withdrawal the benefit of cross-subsidy from funds of annuitants who have died is not available as it is with an annuity.
Investments
The value of investments can fall as well as rise and is not guaranteed. You may get back less than the amount invested. Past performance should not be seen as an indication of future performance.
The investment returns on your fund may be less than those shown in any illustrations you may receive from HD SIPP.
There is an extra risk of losing money when shares are bought in some smaller companies including penny shares. There may be a big variation between the purchase price and the selling price of these shares. If they have to be sold immediately, you may get back much less than you paid for them.
The cost effectiveness of your SIPP may depend on a number of factors, including:
- the size of your SIPP in relation to the initial and on-going costs (including our charge which may increase in the future);
- the type of investments held;
- the frequency with which you deal; and
- the size of transaction you undertake.
If you have a smaller fund, or deal excessively, the value of your SIPP may be eroded and the costs may be disproportionate to the value of your SIPP.
Whilst the HD SIPP allows investment into unquoted shares or private limited companies, HD SIPP would draw you attention to the following points:
- Valuations -It may be difficult to determine the worth of the shares at a given time and subsequently it may be difficult to determine the value of your SIPP.
- Liquidity -These types of investment may present problems and cause delays if the SIPP is placed into Income Withdrawal. Also, in the event of the death of the SIPP member, the nominated beneficiary may experience significant delays in realisation of the capital (the final decision in this circumstance rests with the SIPP Trustees).
Income Withdrawal
It should be noted that taking an income withdrawal may erode the capital value of the SIPP. If investment returns are poor and a high level of income is taken from the SIPP, this may result in a lower income being available in the future.
If income withdrawal is taken there is no longer a requirement to purchase an annuity at age 75. If income withdrawal is continued after age 75 the maximum income levels permitted by Her Majesty’s Revenue and Customs (HMRC) will reduce significantly.
There may also be significant tax charges associated with continuing income drawdown (known as Alternatively Secured Pension) after age 75.
Should an annuity be purchased no guarantee can be made for the level of pension income received and may be lower than the income received under income withdrawal.
