Summary

Self Invested Personal Pension (SIPP)
A SIPP is a personal pension plan but with one very significant difference: administration is separate from investment content, giving the plan holder freedom to choose and change the investments within it. SIPPs have been around since 1990, but have risen rapidly in popularity since the mid nineties. It is estimated there are now more than 70,000 plans holding over £14bn.

A SIPP must be set up with a recognised provider and professional trustee. The paperwork may be more extensive than an ordinary personal pension or stakeholder pension plan because each SIPP is unique to the individual. However, a number of packaged plans are available to streamline the set up and running procedures.

Some important changes are proposed from April 2006.

Important changes to the whole UK pension regime are proposed in 2006. These will radically alter the way people can save for their retirement, but offer great opportunities to save in SIPPs for your retirement. Some of the most important changes are:

• Limits to contributions will be raised to the lower of £215,000 or 100% of earnings in any year.

• The limit to tax relieved savings are set the size of all your personal funds added together. This is called the 'lifetime limit'. It is set at £1.5m for 2006, rising to £1.8m in 2010.

• If you are entitled to an annuity from a defined benefit or final salary occupational pension scheme, this pension is multiplied by 20 to evaluate the size of your fund.

• There will no longer be a prohibition on setting up a personal pension using earnings to contribute if you are a member of an occupational scheme at the same time.

• You will not be allowed to draw your pension until you are 55.

• On death, there are circumstances where the unused pension fund may be taxed to inheritance tax.

All these proposals are subject to regulations which are to be published by early 2006, but have not yet been finalised and may change.