Immediate Vesting Personal Pension Plan, also known as the IVPPP, can produce an adequate pension income for those looking to retire. The IVPPP begins life as a personal pension plan which means you are able to invest a single cash lump sum with tax-relief from this plan or else you can transfer funds from other pension plans you may have. As soon as you decide which funds you wish to invest, a lifetime annuity will be purchased by the IVPPP.
This plan still enables you to benefit from the 25% tax-free lump sum payment that most pension funds allow. In general, the pension provider should be able to immediately give you the cash with the other 75% used to generate an income for life that is guaranteed.
The Simple Stuff
Purchase an IVPPP either using money that has been transferred from one fund to another or else with a single lump sum of money that comes from an alternative source such as your savings or from property sales. It is possible to buy an IVPPP anytime between the ages of 55 to 75. This has changed from the pre-2010 minimum age of 50. You must place at least £5,000 of your money into an IVPPP with the maximum amount allowed £500,000. It is also important to note the upcoming changes in Lifetime Allowance which is currently £1.8 million but will be reduced to £1.5 million in April 2012.
Purchasing An IVPPP
It would be heartbreaking to find that after a hard life of work, a single bad pension decision could undo everything. Make sure you accept the tax-free cash and set up a plan that guarantees you an income for life.
There is a good chance that you have pensions with several different providers. With an IVPPP, you will be able to transfer money from the majority of providers. It is extremely convenient to place all your money in one big account to provide you with a single, uncomplicated income. It is not that difficult to make this arrangement and it could save you a lot of money in the long run and will help you avoid the strain of having to check numerous accounts.
A popular choice amongst those nearing retirement is to place their money safely in a Building Society. Although this should keep the money safe in theory, it may not be the best choice.
The Issue With Tax
The moment you purchase an IVPPP with your pension money, tax relief of 20% will
be added by HM Revenue & Customs. An IVPPP enables you to take 25% of your
pension fund in tax-free cash so you immediately make something of a gain. This tax relief does not exist if you elect to place your money in a building society. Everything that is left in your pension pot after taking out the tax-free cash is used to provide you with an income for life. This money is taxable income so is subject to at least the basic rate of tax when withdrawn.
If you are a high-rate taxpayer who must pay 40% tax, although you will be allowed claim extra tax relief. All you need to do is add this information when filling in your tax returns. An IVPPP is not suitable for anyone without a reasonable salary because the minimum amount that can be invested is £5,000. Those keen on benefiting from tax relief but unable to afford an IVPPP should check other annuity options.
Another advantage that an IVPPP has over putting your money in a bank account or building society is the fact that an IVPPP offers guaranteed income for life. With a bank account, regular withdrawals could put a serious drain on your fund and leave you with insufficient funds to live your life comfortably. One problem with an IVPPP is that you may end up receiving less than what you invested depending on your longevity. With a building society or bank, your life span does not dictate your return.