Contributing to a SIPP (Self-Invested Personal Pension)

Although many SIPP (self invested personal pension) providers do not specify a minimum investment, it is generally recommended that you should have an existing pension fund of around £50,000 to transfer or be investing sums of at least £3-4,000 a year. You will usually have the choice of making a large, one off investment (or transfer), or regular monthly or annual payments.

Tranferring Funds

Many people transfer other personal or stakeholder pension schemes into a SIPP so that they can consolidate their retirement savings in one place and benefit from easier administration and possibly more cost-effective charges. From October 2008, it has also been possible to transfer in Protected Rights funds into a SIPP (funds built up through the member being contracted out of the State Second Pension, also known as the Additional State Pension or SERPS).

Maximum Contribution Levels

Although there is no limit to the amount you invest into any number of pension schemes (including SIPPs), the maximum tax relief you can receive each year is 100% of your earnings, subject to an annual allowance and a lifetime allowance. If you have few or no earnings, you can receive tax relief on up to £3,600 a year. For the 2009/10 tax year, the maximum is £245,000; this will increase to £255,000 in the 2010/2011 tax year (when it will be frozen at this amount until 2015/16). Contributions made in excess of the annual limit will be taxed at 40%.

Any contributions made to a SIPP will grow faster than in most other forms of investment, as there is no liability to tax on capital gains and all forms of investment income (except dividends) are also tax free.