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Introduction to SIPPS
From April 6th 2006 Government proposals for pension
simplification came into effect. This has lead to many new
opportunities for people to invest their savings for the long
term with greater flexibility when it comes to retirement and
ways of generating an income.
Major changes in pension rules mean that from April 2006 you can
contribute to as many pension plans as you wish, although to
receive full tax relief you must not exceed 100 percent of you
annual salary.
Pension reform has widened the investment options available to
the individual and has relaxed the rules which govern the
purchase and sale of assets into a pension plan.
Another major change introduced from April 2006 is in the way
individuals can take benefits or draw upon assets within a
pension. When an individual wishes to retire, there is greater
flexibility and choice when it comes to deriving an income.
Individuals now have the option of pension drawdown as well as
the purchasing of an annuity – this gives greater control over
the initial level of income derived and income flexibility
during retirement.
For many people the Self Invested Personal Pension Scheme
(SIPPS) will become the most attractive and Tax efficient method
for long term saving featuring strongly with regard to their
retirement planning.
A SIPP will allow regular and lump sum cash payments, and you
will also be able to transfer other pension arrangements into
the scheme. If you are employed, your employer can also pay into
the plan. In addition SIPPS will allow investments from a wide
range of sources including Commercial Property, shares and unit
trusts.
Annual Allowance.
Since A-Day, annual pension contributions have a new limit
attracting full tax relief. This limit is the greater of £3,600
and 100% of salary, subject to the annual allowance (£235,000 in
the 2008/9 tax year). Any contribution over the annual
allowance will be subject to a tax charge. We will explain this
in further detail later in this bulletin.
Lifetime Allowance.
As well as an annual allowance charge, there is a possible
lifetime allowance charge if total pension funds exceed the
lifetime allowance at when pension benefits are taken. The
lifetime allowance is £1.65 million (2008/2009) rising to £1.8
million in the 2010/2011 tax year.
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