SIPP contributions

Contributions to a SIPP can be from a one off investment, a regular contribution or a transfer in from an existing policy or policies such as occupational pension schemes, final salary schemes, section 32 buy-out policies, free standing additional voluntary contribution schemes, retirement annuity contracts, stakeholder and personal pension schemes.
With effect from October 2008, it has also been possible to transfer in Protected Rights funds into a SIPP. These are funds that have been built up through the member being contracted out of the State Second Pension S2P, formerly known as SERPS.
The maximum allowable investment into a SIPP is subject to the same Annual Allowance rules as other pension schemes. For the current tax year, 2008/09, the maximum is £235,000. For the next tax year, 2009/10, the maximum will be £245,000.
Loans and Borrowing using your SIPP
A SIPP may make loans to unconnected third parties, but not the members of the SIPP, provided they are on a prudent, secure and commercial basis.
SIPPs will let you borrow for any legitimate purpose intended to further the aims of the scheme and such borrowing will be limited to 50% of the value of the scheme's net assets at that time. So, for example, if a SIPP is worth £100,000, it can borrow £50,000 to give it a total value of £150,000 to invest.
SIPP tax savings
Contributions to Personal Pensions generate direct tax savings. Contributions are made net of tax relief, which means that you will only actually contribute £80 net for every £100 of contributions paid. Higher rate taxpayers likewise make contributions net of basic rate tax and can then claim additional relief via their Inspector of Taxes/Self Assessment return. A 40% taxpayer therefore only contributes £60 for every £100 of contributions falling within the higher rate band. These figures assume basic rate tax of 20% and higher rate tax at 40% (2008/09).
Your pension contributions will grow in funds where there is no liability to tax on capital gains and where all forms of investment income (except dividends) are also tax free. Your money may therefore grow faster in a Personal Pension than in most other forms of investment.
At retirement you have the option to take up to 25% of the fund as a tax free cash lump sum. You no longer need to take all your benefits by the time you are 75 but after this age, you can only take benefits as income. If the total value of all your pension benefits exceeds your "Lifetime Allowance" you will be subject to a tax charge of up to 55%. For the 2008/09 tax year the Lifetime Allowance has been set at £1.65 million, rising to £1.8 million for the tax year 2010/11. It will therefore be important for those with substantial pension funds to ensure they avoid breaching this ceiling. By April 2010 the earliest age upon which you could take benefit is being increased from the current age of 50 to age 55.
Given the many tax advantages that are available with regard to funding a personal pension there are limits to the contributions that can be paid. You can make contributions of up to the greater of £3600 or 100% of your annual earnings to all of your pensions each tax year. It is also possible for your employer to make contributions to your plan but if your combined contributions exceed the Annual Allowance you will be personally taxed on the excess at 40%. For the 2008/09 tax year the Annual Allowance has been set at £235,000, increasing to £255,000 for the tax year 2010/11.