A SIPP is a Self Invested Personal Pension Scheme that provides you with the option of choosing when, where and how you invest the assets of your pension fund.
In simple terms, a self-invested personal pension puts the investor in control of their pension planning. Traditionally SIPPs have been the domain of the wealthy and as a general rule of thumb you had to have a pension fund with a value greater than £200,000 in order to make it worth your while.
From the 1st October 2008 the government has announced that it will be removing the restriction on placing accumulated Protected Rights funds into a SIPP (self invested Personal Pension Plans). Protected Rights will be permitted to be invested in the full range of investments allowable under a SIPP. For many people this eliminates one of the last remaining reasons to favour a personal pension over a SIPP.
Self Invested Pension Plans have the same tax advantages of normal pension plans. In simple terms, this allows an investor to benefit from generous tax relief provided from the government on their contributions. In simple terms, this means that a tax payer will receive a boost on their contribution depending on their tax rate.
There is sometimes confusion on the maximum amount that can be paid into any form of pension planning. There is in fact no financial limit on the amount that can be contributed to a registered pension scheme. However, there is a maximum amount on which an individual can claim tax relief in any tax year.
Given the number of options available, it is important to decide what your needs are from your SIPP and what areas you are looking to invest in. This can narrow the choice of SIPP providers significantly.
A fully fledged Sipp can accommodate a wide range of investments under its umbrella, including shares, bonds, cash, a commercial Property SIPP, hedge funds and private equity.
Pension investors are free to bring together several different pensions under the one Sipp umbrella by transferring a series of separate schemes into a Sipp.
The rules governing pensions have changed and it is now possible to pay up to £215,000 into a Sipp each year, rising to £255,000 by 2010.
If, like most people, you earn less than this, the maximum amount that you can pay in will be limited to your gross pensionable income. Like any other pension investment, this money will be free of tax.