Self-Invested Personal Pensions

What You Need to Know

SIPPs (self-invested personal pensions) are DIY pension schemes that allow you to take greater control of your retirement savings.
SIPPS allow you to choose what type of asset class you want your money to be put into and you can mix and match investments to minimise risk and maximise returns.
Alternatively, you may want to appoint a fund manager or stockbroker to take control over your pension investments, though they will charge a fee for this service.
As with other types of personal and occupational pensions, any investments made into a SIPP are tax-free.
One other major advantage is that, while most pension schemes only accept cash, you can put assets such as stocks and shares and commercial property into a SIPP.
However, you should be aware from the start that SIPPs can involve more work and be riskier than standard pension schemes.
A SIPP can be started either by yourself or by your employer, though either way, you will need to approach an HMRC-approved pension scheme provider.

What is a SIPP?

SIPPs are ‘self-invested personal pensions’. Quite simply, they’re ‘do-it-yourself’ pension schemes, allowing you to take control of your retirement savings by deciding where the money you put aside each month goes.

In particular, SIPPs allow you to choose how your pension pot is invested. Not only are you able to choose what type of asset class you want your money to be put into, but you can mix and match investments, thereby minimising risk and maximising returns, and, depending on the scheme you sign up with, you may also be able to move your investments around over the years.

Alternatively, you may want to appoint a fund manager or find a stockbroker to take control over your pension investments, though they will charge a fee for this service.

Benefits of SIPPs

As with other types of personal and occupational pensions, any investments made into a SIPP are tax-free. This effectively means that, whatever you put in, the Treasury will add to, according to your tax rate, which could be up to 40 per cent.

One other major advantage is that, while most pension schemes only accept cash, you can put assets such as stocks and shares and commercial property into a SIPP, giving you more flexibility and potentially enabling you to boost your retirement fund even more.

Potential Drawbacks of SIPPs

Alongside the advantages of SIPPs, there are also a number of potential drawbacks. From the start, it should be noted that SIPPs are not for everyone, so assess your own finances and personal circumstances and ask yourself if this is the right savings option for you.

Above all, SIPPs are best-suited to savers able to put significant sums of money into their retirement fund. As such, if you are nearing retirement age or if your salary means that you will only be able to put a few pounds aside each month, then SIPPs may not be right for you.

Additionally, you should be aware from the start that SIPPs can involve more work and be riskier than standard pension schemes. As before, you have the power to take control of your investments, meaning you need to stay on top of your finances. Alternatively, you could pass this responsibility onto a professional expert, though you will have to pay for this.

Setting up a SIPP

A SIPP can be started either by yourself or by your employer. Either way, you will need to approach an HMRC-approved pension scheme provider – failure to do so will mean you are not able to benefit from tax relief – with most big insurers, IFAs and fund managers able to offer this service.

A SIPP can either be started from scratch, or else you can transfer funds from another plan (or plans) into it. Note that, while there is no real minimum amount you will need to have saved up in order to start a SIPP, the larger the fund you are able to pay into it at the start, the greater the degree of flexibility you will be able to enjoy when it comes to managing your investments. Additionally, the flat-rate fees charged by some scheme providers may mean that smaller contributions are not really viable.

Rules, Costs and Fees

The actual administration costs of a SIPP will vary from provider to provider, so it pays to shop around and find the appropriate saving vehicle for you. Similarly, different providers will have different rules on when you can access your savings, so again, take the time to find the right one for your circumstances.

However, there are some rules that are standard for all SIPPs. For starters, anyone taking out a SIPP needs to be both a UK resident and under the age of 75. Additionally, all savers have the right to move existing pension plans into their SIPP free of tax, so long as this does not take your annual contributions past the £255,000 threshold.

Investment Options

Though the ‘self-invested’ part of SIPPs may seem a little daunting, you needn’t be a money expert in order to benefit from this type of scheme. In fact, you can have as much or as little control over your investments as you wish, though note that there are some restrictions on what you can invest in without paying tax.

Permitted (tax-free) investments include:

UK and overseas-listed stocks and shares.
Unlisted shares.
Insurance company funds.
Commercial property.
Open-ended investment companies (OEICs).
Investment trusts.
Deposit accounts and cash.

Meanwhile, the following investments are allowed by HMRC, though they are subject to tax penalties:

Residential property.
Non-investment grade gold bullion.
‘Pride in possession’ assets, such as antiques, paintings, vintage cars, etc.

If in any doubt about what you can and can’t invest in, consult with your scheme provider or administrator or with a professional personal finance advisor.