Self-invested personal pensions, or SIPPs are designed specifically for those who have experience in investments. Those making SIPP investments should be willing and able to commit the time needed to manage their savings for the long-term.
Introduced in the 90s, SIPPs were originally reserved for the wealthy, however, when the internet made direct trading possible for all this pension scheme became an option for all.
If you’ve made the decision to take control of your pension pot via a SIPP, then this simple guide will help navigate you through the basics.
The SIPPs difference
Most standard pension plans don’t let you choose where your money is invested, and nor do they make it easy to see what’s happening to your savings. With SIPPs, you take control of your retirement fund – you decide where your money should be invested and have full visibility at all times.
Similarities
Just like other personal pensions, you can pay money in whenever you like, and the government contributes an extra 20% in pension tax relief. Contributions and withdrawal rules are the same for standard pension schemes and SIPPs.
Key benefits
- Flexibility to choose your own investments from a much broader selection of assets
- Easy to manage – you can access your SIPP online and make changes whenever you want
- Access to investment choices otherwise off limits to standard pension schemes
- Ability to seize control of your own retirement fund and make decisions about your savings
Investment options
All SIPPs are different, as are their providers, however, when compared with standard pension plans, they all have broader and more varied investment options, such as:
- UK and overseas stocks and shares
- Government securities
- Commercial property
- Traded endowment policies
- Storage pods
Types of SIPP
Full SIPPs
While these offer the broadest choice of investment, they do have the highest charges and are more suited to those with very large pension funds.
On average, people invest between £150,000 and £450,000 into a Full SIPP, with many providers demanding a minimum monthly contribution.
Fees differ from a flat fee to a percentage of the investment, with some SIPPs requiring an initial set-up fee, and others an annual management charge.
Low cost SIPPs
Although low cost SIPPs offer a good variety of investment options, there are certain exclusions such as offshore funds or direct property ownership. They are more suited to those with comparatively smaller savings pots.
Fees are lower as no advice is offered by the provider and typically, they don’t carry annual management charges or set-up fees.
Hybrid or insurance SIPPs
Offered by insurance companies, these types of SIPPs often require you to pay substantial amounts of money into the insurance company’s own funds before gaining control over your assets and investment choices.
Initial set up fees and annual management fees usually apply but are often capped at between £300 and £600.
Although SIPPs are growing in popularity, with many people wanting to take control of their retirement, they are a much higher risk option and should normally only be used by experienced investors with large pension pots. As such, we recommend you seek professional financial advice before making any decisions on your retirement pot.
If you think you may have been mis-sold a SIPP, please speak to one of our legal experts to see whether you have a claim.