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Self Invested Personal Pensions (SIPPs)

Self Invested Personal Pensions (SIPPs)
Published:  22 Feb at 7 PM
Self Invested Pensions, commonly referred to as SIPPs are a form of personal pension that provide users with a greater level of freedom than traditional pensions. They provide those who invest within them, the opportunity to decide what they invest their pension in or if they don’t feel they know enough about this, they can arrange for a specialist investment manager to make the investment decisions for them. They are required to implement a trustee who will keep an eye on the performance of the Self Invested Personal Pensions but as long as they do this, the individual can essentially manage their investment by themselves.

A fully fledged SIPPs can accommodate a wide range of investments under its umbrella, including shares, bonds, cash, commercial property, hedge funds and private equity. However you are likely to pay for the wider level of choice with higher charges. The charges come in two kinds, the set-up fee and the annual administration fee. A low-cost SIPP, with a limited range of options, such as shares, funds and cash, might not charge a set-up fee and only a modest, if any, annual fee

There will, in addition to annual charges, be transaction charges on things such as dealing in shares and switching investments around. Under the new rules which came into force in April 2006, investors have much more freedom to invest money in a SIPP. They can make contributions up to 100 per cent of their earnings, with full tax relief on the total, subject to a maximum earnings limit of £245,000 in 2009-10. You can invest more but without tax relief. This replaces the less generous - and more complicated - earnings-related allowances that used to be available.

Contributions can be made by employers, employees and the self-employed. Where previously employees in a company pension scheme who earned more than £30,000 could not also contribute to a SIPP, they are free to do so now, provided that they do not exceed the limit of 100 per cent of their earnings, up to the maximum mentioned above.

People are free to bring together several different pensions under the one SIPP umbrella by transferring a series of separate schemes into a SIPP, they should check whether there are any valuable benefits in the existing schemes that would be lost on transfer. The actual transfer costs have also to be taken into consideration. Some providers make no charge - others charge anything from £75 to £350.

Recent Rule Changes

One change that could, over time see a flood of money coming into SIPPs is the alteration to the rules governing what are known as protected rights pension funds. These funds represent the accumulated money that the Government paid to an estimated 10 million savers from 1988 onwards as an inducement to opt out of the State Earnings Related Pension Scheme (SERPs). Prior to October, this money was locked away in a fairly narrow range of funds run by insurance companies, but from October savers have been free to invest these funds in SIPPs, which offer a much greater range of investment choice.

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