SIPP schemes to accept State Second Pension contributions
From 1 October 2008, Self-invested Personal Pension (SIPP) schemes will be allowed to receive and hold what would have been state pension contributions. The change was announced in this year’s Budget in March, and SIPP investors who want to take advantage of it can make an application to do so now.
Under the current system, SIPPs, as the same implies are very much a personal finance product and are not generally attached to an employment. Contributions to a SIPP scheme are made by the individual investor and up to now the compulsory contributions made by every individual to their State Second Pension Scheme were not eligible to enter the SIPP. This is in contrast to most employment-related pensions, which allow employees to “contract out” of the State Second Pension system after they have paid their basic state pension contribution, and put what would be their “top-up” second state contribution into the private scheme instead. The SIPP will now have this flexibility as well.
The benefits deriving from Second State Pension Contributions are known more generally as “protected rights”. For clarification, this does not mean protected in an investment sense, only that they are subject to certain rules (including, up to now, the regulation against investment in SIPPs). SIPPs wishing to hold protected rights must be approved as an Appropriate Personal Pension (APP) scheme, and hold a valid contracting-out certification from HMRC.
The application for the contracting-out certificate can be made immediately, though it should request as effective start date of 1 October, using form APSS101. This form is currently being amended by HMRC to take account of the new rules, but the old form can still be used at the moment. The form can be found on the HMRC website.