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An estimated 130,000 individuals hold self-invested personal pension plans (Sipps). But that total is set to double or treble in the next couple of years as investors take advantage of the new pension rules that come into force from 6 April 2006 (A Day). Sipps are likely to become the pension plan of choice for millions of people saving for retirement - not least of all because from next April, residential property, both in the UK and abroad, becomes an eligible investment for a Sipp. You will effectively be able to buy a holiday home at a discount of up to 40%, and shield it from UK capital gains tax, income tax - and possibly inheritance tax while it remains in your pension. For many, of course, the features of flexibility in structure and choice of investments, together with the separation of pension administration and the investments you make, remain the most important benefits of Sipps.

A Sipp is a personal pension that allows you to manage your own investments, ranging from shares and bonds to mutual funds, foreign shares, property and government stocks, or choose your own investment manager - or even several investment managers if the fund is large. The Sipp administrator is generally separate from the investment house you use. Below is a list of Sipp fund choices.

Self-invested personal pension plans were introduced in 1989 by the then Conservative government to give individuals greater control of their pension investments and more flexibility. People were fed up with being forced to invest through life company funds and the government responded by launching Sipps. Sipps have the added advantage that at retirement you can operate 'income drawdown': taking a pension, or regular income from your fund, but leaving the investments to continue accumulating. Until Sipps were introduced most people were obliged to buy an annuity, or pension for life, with their pension fund. Until 6 April next year, anyone reaching age 75 before that date is still obliged to purchase an annuity.

But as of 6 April 2006 - otherwise known as 'A-Day' - the contribution limits of earners to a Sipp, or any other pension, will change. You will be able to contribute as much as £215,000 each tax year, or 100% of earnings, whichever is the less, provided your pension fund does not exceed (initially) £1.5 million, known as the lifetime limit. Alternatively, a company contribution of up to £215,000 can be paid regardless of the member's earnings. In the year of retirement there is no limit on the amount you can contribute to a Sipp which means that on 6 April 2006 you could pay in £250,000 to a scheme which already has £750,000 in it, get tax relief on the £250,000 at up to 40%, and then retire on 7 April taking £250,000 as your tax free lump sum. Nice work if you can get it!

Sipps are designed for investors who want maximum control and flexibility over their pension. You can make regular contributions or put in one-off lump sums provided they do not exceed the annual limit. Sipps offer:

• flexibility on the choice of investments - you are not locked into an insurance company fund and there is a wide range of eligible investments.
• the ability to select your own fund manager or managers
• early retirement irrespective of whether you remain at work
• penalty free transfers
• staggered or phased retirement
• income drawdown - avoiding the requirement to purchase an annuity
• significant tax advantages
• inheritance tax planning possibilities
• consolidation - you can transfer all existing pension entitlements into a Sipp, including transfers from occupational pension schemes

Finally, a Sipp can be safer than a defined benefit occupational pension offered by a company that might get into financial difficulties - as some 85,000 members of occupational pension schemes have already found out. On the other hand, your pension from a defined contribution occupational scheme or a Sipp will depend on how much you save, investment performance and annuity rates when you retire, rather than your final salary and years of service.

Much of the interest in Sipps has been generated by the introduction of new rules which will, for the first time, allow investors to hold residential property in a Sipp. At the moment you can only invest in commercial property through your Sipp. Commercial property eligible to be held in a Sipp is fairly wide ranging and includes shops, hotels, B&Bs, and factories.

After 5 April 2006 you will also be able to invest in residential property. But there is an important point here. Currently you can borrow up to 75% of the purchase price of a commercial property to put into your Sipp. This means that if you want to buy an office block for £1 million, your Sipp must have at least £250,000 in cash, but it can borrow the balance of £750,000. This is very popular with professionals like accountants and solicitors who form a syndicate to buy their office building. The property is shielded from capital gains tax in the pension fund, rental income rolls up tax free within the Sipp, and it is a very tax-efficient way of owning a commercial property. Once any borrowing is repaid, the rental income can be used to provide pensions in retirement.

After 5 April 2006 you will be able to put residential property into your Sipp - but the amount you can borrow reduces dramatically to just 50% of the value of your fund (not the value of the property). So if you have £250,000 in your pension fund, you will be able to borrow only £125,000 after April 2006. However, up to 100% of the value of the fund can be invested in property after April 2006.

Because after A-Day individuals will be able to have both occupational pensions and Sipps, and it is already possible to transfer funds from an occupational scheme to a Sipp, it is imperative that individuals take advice now. People falling in to the following categories should definitely be seeking advice:

• Those with pension funds in excess of the new lifetime allowance (£1.5 million).
• Those likely to exceed the lifetime allowance at any point in the future.
• Those with tax-free cash entitlements of more than 25% of their fund.
• Those who are in a position to retire now but could defer until after April 2006.
• Those with more than one year to retirement who wish to transfer their occupational scheme benefits to a Sipp, rather than receive a pension in respect of their final salary.
• Those who want to review their overall pension arrangements

If you need help with your pension planning and to determine whether you are eligible for a Sipp then contact our office today. We can offer a full analysis without charge provided by specialist pension trustees to assess the benefits of Sipps for you.