Why opt for a self-invested personal pension?
Like a normal pension, SIPPs offer valuable tax breaks by putting a ‘wrapper’ around your investment so that you don’t have to pay income tax on your pension contributions.
Most pensions are inflexible, however, locking you in to a pre-set portfolio of investments. A SIPP lets you do things your way, selecting for yourself the investments you make. If you’re financially savvy and have strong preferences about how to grow your retirement funds, a SIPP could be a great choice for you.
You might also benefit from the flexible approach offered by SIPPs if you are self-employed, or wish to consolidate a number of pre-existing pension plans from previous employers.
SIPP pension advice on how you can invest your money
They are very flexible and allow you to choose where to put your money. You can invest in:
- Collective trusts like unit trusts and Open Ended Investment Companies (OEICs) – professionally managed, FSCS regulated funds that allow you to pool your money with that of other investors
- Investment trusts
- Company shares in the UK and overseas – bought directly from the company
- Exchange traded funds
- Gilts and corporate bonds – lending money to a government or company and getting interest back on your loan
- Cash only – simply putting your money straight into the SIPP
With some SIPPs, you can also invest in commercial property and land (but not residential property). How best to invest your pension can be a difficult decision, so it is good to get SIPP pension advice.
Types of SIPPs
There are two different types of self-invested personal pension:
- Low-cost SIPPs. This is where you do things direct. There’s no middleman to advise you on your investments, so you save money by taking charge of where your money goes. You are unlikely to be able to invest in commercial property with a low-cost SIPP, but you can still take advantage of a wide-ranging investment portfolio.
- Full SIPPs. If you would like some guidance on how to invest your money, this type of pension could be for you, as it includes investment advice from your pension provider. The downside is that this advice comes at a price.
Things to consider
- SIPPS require careful thought and financial planning.
- They involve a DIY approach to investment, which means you’ll have to monitor your pension carefully and move your money when your investments are no longer performing well.
- You’ll need to take into account the fees and charges that come with a SIPP. As well as a one-off set-up fee, you’re likely to be charged transaction fees whenever you buy or sell an investment. For those that are managed by a fund manager, you’ll probably pay annual management and admin fees.