What will the changes in April be for SIPPS?

On April 6th 2006 (otherwise known as A-day) the Government is bringing in changes to the current rules governing pensions.

Although the SIPPs tax breaks for investment in residential property and tangible moveable property such as fine wines and classic cars will now not go ahead following a Government u-turn, there will still be exciting changes to pension rules which will be of interest to SIPPs savers.

The aim of these changes is to make pension schemes more attractive to savers.

The main change is the doing away of the old limits on how much you could save each year in a pension fund – and still get tax relief on your contributions.

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When the changes come into force, savers will be able to put 100% of their annual salary (with a cap of £215,000) into personal pensions and SIPPs without losing the tax relief.

These changes also apply to money not directly related to earnings. For example, a £10,000 inheritance could also be added to the SIPPs pot without incurring any tax charges.

There are many advantages of these new rules. In theory you could avoid paying income tax on your wages as a result of these changes: if you were able to live off your savings or be supported otherwise, you could in theory invest your whole salary in SIPPs without incurring income tax.

The Treasury will cap the total amount that can be saved into a SIPPs pot at £1.5 million, although this will rise each year until at least 2010.

Another attractive advantage of investing in SIPPs will be the ability to draw 25% of your SIPPs pot as a tax-free lump sum at 50, plus the fact that you’ll be able to defer taking any income until the age of 75.