Sam Dunn: Think before you succumb to Sipp fever

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I first heard the S-word shouted behind a deli counter. The manager was fishing about in a bowl of olives while her colleague bawled it in the back room.

Then, two days later, it emerged in a burst of choppy conversation between a trio of elderly shoppers elbowing through a rush-hour platform.

In one week, I've twice heard Sipp - the self-invested personal pension - mentioned by members of the public.

That's twice more than I have previously heard it uttered outside the offices of those financial institutions and life companies planning to make a mint from their sale.

It was a startling revelation. People who might once have yawned at the word "pension" are now sitting up and take an active interest. Given the scale of Britain's long-term savings crisis, many readily discuss their plans - or fret over the lack of them.

But to hear such talk of Sipps - and, in the case of the deli manager, the possibility of using a pension pot to buy a holiday home to rent out - seems like a dangerous leap.

Here's a quick recap for those yet to catch a whiff of Sipp fever. From 6 April 2006, thanks to new rules, you will be able to try to turbo-charge your retirement cash by using a Sipp to borrow money and invest in all sorts of goodies, such as holiday homes, buy-to-let properties and art - subject to possible annual tax charges.

All the Treasury's old savings limits based on age, salary and pension type are being abolished.

In the next tax year, you can place up to £215,000 in a Sipp and also "fast-track" your fund size by dumping savings directly into it.

Now, Sipps have been around for years as the sophisticated vehicle of choice for wealthier savers prepared to take a DIY approach and choose their own pension funds.

It's only this new-found flexibility from April, and particularly its potential for property, that has helped them pierce the consciousness of the man on the Clapham omnibus.

This is an altogether different matter and raises considerable concern.

I don't mean, of course, to ward off savers or dampen Sipp interest. Rather, it's important to stress just what kind of risks these plans carry for ordinary savers.

As it stands, they are unregulated and their possible mis-selling by unscrupulous salesmen and advisers has fostered anxiety.

Insurer Norwich Union argued last week that consumers needed protection from aggressive marketing by property companies that over-emphasised Sipp tax benefits at the expense of their downsides.

There are well-founded fears that individuals with many years of saving in a comparatively secure final salary or money purchase pension scheme, but with few other assets, could, inappropriately, be convinced to transfer everything they've got into a Sipp.

Happily, a Treasury consultation paper on whether to bring Sipps under the regulatory eye of the Financial Services Authority was also launched last week.

It may take some time to sort out a clear, unambiguous set of rules, but better some sort of consumer protection than none - no matter how long it takes.

Given the Treasury's habit of taking a monumentally long time to impose regulation, it's unlikely we'll have the final copy before the 6 April deadline. More crucially, anyone considering the notion of a Sipp as part of their pension retirement plans must stop to think through the implications.

Even with the tax relief available, you'll first need to save a huge sum to be able to put a buy-to-let or holiday home into a pension pot - at least £250,000, by many estimates - as well as having money left over for other investments.

There's also the danger of wholly investing your Sipp pension fund in a buy-to-let property only to find, years later, that a falling market means your nest egg is shrinking and that, with no buyers, you can't get access to your cash to buy an annuity or income for the rest of your life.

Sipp fever is in danger of overheating: now is a good time to step back and take a long, cool-headed look at exactly what you want - and can really afford - as you prepare for retirement.

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