What is a SIPP?

In order to avoid tax penalties and gain full tax relief, the total contributions paid in respect of an individual in a tax year should not exceed their annual allowance. This would include a calculation for benefit accrual under a final salary pension scheme during that year. Any contributions in excess of the annual allowance would be subject to a 40% tax charge for the individual concerned.

The annual allowance for the 2006/07 tax year has been set at £215,000, rising by £10,000 each year to £255,000 in the tax year 2010/11.Each individual is able to build up a pension fund with full tax privileges equal to their lifetime allowance (LTA). For the majority of people, those not covered by transitional protection from the old regime, the standard LTA will apply. We know the projection for the increase in the LTA up to 2010, which is shown in the following table, after that date legislation proposes a review of the LTA every five years.

Tax Year Standard Lifetime Allowance

2006/07 £1.50 million
2007/08 £1.60 million
2008/09 £1.65 million
2009/10 £1.75 million
2010/11 £1.80 million

HMRC regulations enable this type of Pension to invest in a wide range of investments and can include: -

* Borrowings
* Collective investment schemes
* Commercial property
* Contracts for differences
* Deposit accounts
* Depository interests
* Futures and options
* Insurance company managed funds and unit linked funds
* Investment trusts
* Loans
* National savings and investments
* OEICS
* Stocks and shares
* Traded endowment policies
* Unit trusts

On retirement (from age 50) (age 55 from 6th April 2010) the member may take a pension based on the GAD rates in force at that time with 25% of the fund value available to be taken as a tax-free lump sum. Members with transitional protection due to benefits built up before 6th April 2006 may consider which option best suits them at retirement but will depend on the Protection elected for at 5th April 2006.

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