Q: I want to invest in a collective investment scheme that will invest in residential property. As an investor I will have no day-to-day management of it and gain no benefit other than the income and capital gain. Can I invest this in my SIPP (Self-Invested Personal Pension) and pay no tax on the income?

A: In the Chancellor’s 2006 pre-Budget report, he announced that he would prevent a SIPP from investing in residential property from A-Day. Strictly speaking, you are not prohibited from investing in residential property, but the legislation will be designed to remove all tax advantages from holding such assets by recouping 40 per cent income tax relief and potentially a 15 per cent ‘scheme sanction charge’ on such investments. The rules will apply to direct investment by the SIPP when it owns the property.

The announcement from HM Revenue & Customs says the rules will apply to ‘indirect investment’ such as when the SIPP owns a company that in turn owns the residential property. However, the announcement does say that ‘the government is minded to allow’ SIPPs to invest in ‘genuinely diverse commercial vehicles … such as the proposed Real Estate Investment Trusts’.

Gordon Brown made it clear that he did not want to prevent such investments, as long as the investment is ‘a genuinely diverse commercial vehicle’, although we will need to await the draft legislation.

Q: I am a pensioner receiving over £75,000 p.a. from a company scheme. Do I need to seek protection?

A: The short answer is ‘No’ – if you are already in receipt of a pension, you have crystallised your entitlement and there should be no need to seek protection.

If, though, somebody was looking at a potential entitlement exceeding £75,000 from an in-house scheme, then the valuation of such rights would normally be on a ratio of 20:1 and thus the deemed fund would be over £1.5m so ‘protection’ might well be appropriate.

Q: The contracted-out element of my occupational pension has been transferred to a personal arrangement. Will it be possible to transfer this into my current SIPP arrangement?

A: Probably not at the moment – we would need to check with your SIPP provider, as some SIPPs do claim to accept protected rights. In practice, this is normally a separate appropriate personal pension contract running alongside the SIPP, although it may be set up under SIPP rules but with a restriction that the SIPP can only invest in cash or gilts (which then satisfies the Department of Work and Pensions requirements). In practice, however, it is generally accepted that SIPPs do not accept protected rights.

Q: I am 73 next birthday. My SIPP and section 226 policies exceed the Lifetime Allowance. I presume enhanced protection is the only exemption worth claiming, as primary protection is very limiting. Should I claim as soon as possible and can I forget about any ‘testing’ thereafter?

A: Enhanced protection is certainly the most popular and relevant in your position. There is, however, unlikely to be any downside in your also applying for primary protection, which would enable you to make contributions post A-Day.

Claiming before A-Day is unlikely to be possible or practicable. Timing is only an issue if you intend to take benefits, otherwise you have three years (or two and a bit in your case) to apply if you do not intend commencing any further benefits before age 75..

ar period. Short-term annuities are really designed to work in conjunction with an unsecured pension and are still subject to the unsecured pension limits

Q: Now that the U-turn on residential property investment has been made to prevent abuse, is it still necessary for the Chancellor to implement his restricted borrowing rules, which are damaging to SMEs looking to buy commercial property through a pension?

A: The Treasury has confirmed that one of the main reasons for the new (and more restrictive) borrowing rules is to act as a ‘brake on demand’ for residential property. We will have to wait and see if pressure is put on to the Treasury with a view to discussing both the borrowing position post A-Day and also to see if it would be possible to reintroduce direct ownership of residential property by SIPPs in a more controlled form, such as eliminating member usage of such assets.

Q: My employer is refusing to allow early retirement from my defined benefit pension. I have heard that short-term annuities will be available after A-Day. Will I be able to use the total amount of my Free-Standing Additional Voluntary Contributions (FSAVCs) and SIPPs to provide for early retirement by filling in the gap between retiring and being able to take my company pension?

A: It’s unlikely that you will be able to achieve this. For example, you won’t be able to exhaust all of your FSAVC or SIPP pots over, say, a five-ye

Q: What are the mechanics of electing for either primary or enhanced protection, and does HM Revenue & Customs issue a form of some kind or is it handled by the insurance companies?

A: Application for either enhanced or primary protection is a matter for individuals. It is not scheme specific and hence it is unlikely that insurance companies will be accepting the responsibility for completing the relevant forms. This is something that we can deal with on your behalf. You have three years to apply for either enhanced or primary protection. You will need a valuation of all pension arrangements and the amount of tax-free cash entitlement at A-Day. There are limits as to how much can be protected if you have occupational pension scheme benefits.

Q: I understand that if you have several policies (Section 226s in my case, initiated in the late 1960s and early 1970s), some of which have been crystallised and the remainder not, the imputed capital value of those already activated is 25 times the current pension. This puts me well over the cap, so is action required?
A: Your point on pre A-Day pensions being valued at 25 times pension is correct (although for income withdrawal schemes such as personal pensions in income drawdown, it is the maximum pension as specified by the Government Actuary’s Department (GAD) that is the relevant figure, not the amount being drawn). This could lead to an effective doubling of the fund.

For example, take a male aged 60 with a personal pension fund in income drawdown worth £400,000. Maximum GAD pension is £32,000. So 25 x £32,000 = £800,000 (for the purposes of the lifetime allowance in the new regime) – in other words, a doubling up from £400,000 to £800,000! This means that many people in personal pension income drawdown will be blissfully unaware that they are far closer to the lifetime allowance than they realise.

Q: Is there anything in the A-Day regulations preventing a teacher with a substantial AVC, who retired last year but did not touch the AVC, from waiting until after A-Day and then taking 25 per cent of the AVC as tax-free cash?

A: In theory there is nothing to prevent you from doing this, although a rule change may be required to the AVC scheme. We would need to speak on your behalf to the scheme administrator, as it appears that it is their intentions, rather than the content of the new legislation, that is the key to you finding the answer to your question.