Gordon Brown announced in Budget 2004 that he was delaying the introduction of the Lifetime Allowance – an overall cap on the monetary value of retirement benefits that can be built up tax-efficiently. The new regime has been postponed to 6 April 2006 (A-Day). The Lifetime Allowance is set at £1.5m for the 2006/07 tax year.
Other radical changes due in April 2006 mean that it is likely SIPPs will become the individual pension vehicle of choice due to the investment flexibility offered by such schemes.

Flexible planning
The simplest way to understand how a SIPP works is to think of it as a flexible personal pension but with special investment facilities. SIPPs follow the same tax rules as personal pensions. You can invest between 17.5 and 40 per cent of annual earnings each tax year, depending on your age. For the 2004/05 tax year, the maximum earnings on which you can base contributions are £102,000. Your contributions benefit from full tax relief and the fund builds up largely tax-free.

At retirement you can take up to 25% of the fund as tax-free cash and use the rest to buy one of the many annuities available to provide taxable lifetime income. Alternatively, you could defer the annuity purchase up to the age of 75 and, in the meantime, draw an income within certain limits directly from your fund. This is known as income drawdown.

New horizons
• Some investors use a SIPP to purchase a property, either for investment or commercial reasons.
• Investors who like the concept of direct equity investment use a stockbroker to run their SIPP portfolio alongside their other equity holdings.
• A large number of SIPP investors use their plans as a vehicle to select the best collective fund managers.

Investment diversity
SIPPs offer access to a wide range of investments in addition to the collective funds available to personal pensions and stakeholder schemes. The choice includes individual equities and bonds, traded endowment policies, warrants and convertibles. You can also invest in commercial property, including new business premises for your firm, hotels, motels, nursing homes, guesthouses and pubs.
An increasing number of investors are using SIPPs in the run-up to retirement to consolidate under one roof the various pension plans they have accumulated over the course of their career. Once you are 50, you can draw a retirement income directly from your fund, while keeping the rest of the assets fully invested. The drawdown facility may already be built into the SIPP, so you may not have to transfer to a separate drawdown plan.

To consider how a SIPP could form part of your retirement planning strategy, please e-mail or contact us for further information. Or why not arrange a meeting for a completely unbiased independent review?

Levels and bases of, and reliefs from, tax are subject to change. Because these investments may go down in value as well as up, you may not get back the full amount invested.