The SIPP Investment Choice
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April 2006 Current SIPP Rules | |
| Investment: | There is no official list but if the client or a family member uses an asset such as a holiday home, it is necessary to pay the commercial rent to the fund or a benefit-in-kind tax to the Inland Revenue of 40% of the rent that would have been paid. There will be an additional 15% tax charge on the pension fund for the use of the assets that lose value over time, for example a car or boat. |
| Contributions: | Up to 100% of earnings, capped at £215,000 in 2006/7. There is an overall cap on the pension fund - the lifetime allowance - which is 1.5 million in 2006/7 rising to 1.8 million over five years. |
| Retirement Options: |
There will be no minimum income requirement under drawdown (although there will be a maximum), so it will be possible to retain funds for estate planning. The compulsory annulisation rule at age 75 disappears and instead clients can switch to the alternative secured pension (ASP) rules, which are similar to drawdown but with restrictions on maximum income and death benefit payments. |
| Death Benefits: |
If the client dies before vesting, the full value of the fund can be paid out tax free up to the level of the lifetime allowance. The death benefit rules for drawdown do not change. On death in ASP the asset can be transferred to other members of the client's family, assuming they are members of the SIPP scheme. That is, they hold the SIPP with the same provider and use the same underlying trust deed. (At present the Inland Revenue is looking at the inheritance tax consequences of ASP and may make changes). |
2005 SIPP Rules | |
| Investment: | Personal Pensions restrict the choice to collective funds, whereas a SIPP provides access to cash deposits, direct equities and commercial property, among other assets. |
| Contributions: | Depending on age, clients can contribute between 17.5% and 40% of earnings up to the level of the earnings cap, which is £105,600 in 2005/6. |
| Retirement Options: |
The client can take up to 25% of the fund as tax free cash and the rest must be used to generate an income, either through the purchase of an annuity or drawdown. |
| Death Benefits: |
If the client dies before taking any benefits then the whole of the fund can be passed on to the beneficiary's tax- free. On death in drawdown the dependents can take the remaining funds as cash, les a tax charge of 35%. At age 75 at the latest, those in drawdown have to buy an annuity. |
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