Self-Invested Personal Pensions
Fed up with insurance companies making a mess of your pension? Then take control and run your own by taking out a self-invested personal pension or Sipp
Fed up with insurance companies making a mess of your pension? Then take control and run your own by taking out a self-invested personal
It is becoming cheaper and easier to choose your own pension investments – whether they are shares, investment funds or property – using a Sipp. And from the start of the 2006/2007 tax year, a residential property, such as a buy-to-let investment, can be included in a Sipp.
If you are used to investing in Individuals Savings Accounts (ISAs), you'll find a Sipp just as easy to run. It is simply a tax-efficient pension wrapper.
In general, Sipps suit self-employed professionals or people who have already built up a significant pension fund. For a plan to make financial sense, a large sum is needed at the start. Many people transfer funds from the first pension fund they have built up. After that, the contributions must be kept high. For a Sipp to be worth considering, you probably need to have £25,000 or more in your pension fund, or be able to pay in £1,000 or more a month.
Investments will attract tax relief at your top rate. The money will be locked up until you are at least 50. You can take 25% as a tax-free lump sum when you retire. The rest must be used to provide a retirement income.
The most complex plans allow you to hold commercial property but the simplest, which hold shares and investment funds, are cheap and you can often trade online.
You must invest actively by building up a balanced portfolio, monitoring it and selling any dud investments. You cannot just buy and forget it.
The contribution limits are the same for Sipps as for the standard personal pension. These limits are age related, and range from 17.5% of your net related earnings (gross salary and payments in kind) for the under 35s, to 40% for the over 61s.
You can retire at any time between 50 and 75 and get your pension benefits, as long as there is enough money in your fund to pay for the lifestyle you want.
Charges can work out quite expensive up front. The main reason is that administration charges tend to be fixed, which means the bigger the
One of the cheapest Sipps comes from Bristol-based Hargreaves Lansdown (http://www.hargreaveslansdown.co.uk). It has no set-up fees and you can buy investment funds at a discount, so initial charges are often just 0.5%.
If you hold only investment funds, there is no annual fee other than the funds' own charge, typically 1.5%. Other cheap providers include Sippdeal (http://www.sippdeal.co.uk) and Alliance Trust (http://www.alliancetrust.com).
Jupiter is one of the cheaper options for the full range of Sipp services. It has a £130 set-up charge, then annual charges of £350 if you stay in Jupiter's own funds or £425 for the full range. Switching funds costs £35.
Beware of hefty charges made by some providers – they are not worth paying if you just want investment funds and online access.
