What are Guaranteed Annuity Rates?
Question asked by Emma Sawyer
I’m self-employed, so I don’t have an employer to arrange my pension for me. Obviously I know it’s important to make pension contributions, but there seem to be so many options for personal pensions on the market that it’s hard to know which one to pick. One of the options I’ve come across is a self-invested personal pension or SIPP — what is this and is it right for me?
First of all, you’re right to recognise that it’s very important to make pension contributions if you’re self-employed. Without an employer to do this for you, and to top up the pension with employer pension contributions, it’s very easy to put it off and then regret it when you come nearer to retirement.
SIPP stands for self-invested personal pension and they’re a type of defined contribution or DC personal pension. SIPPs were introduced to the pensions market by legislation in 1989.
If you’d like more information on your options for a UK private pension, this guide contains information on personal pensions, including information on how to set up a new private pension and some facts about SIPPs.
Like all pensions, HMRC will offer you tax relief on any contributions you make into the SIPP during your working life. You can normally only access money held in your self-invested personal pension from the age of 55 (57 from 2028).
There are a number of SIPPs providers on the market, but they all essentially offer the same thing: a self-invested personal pension plan suitable for pension investors who want more control of their investment and a wider range of investment options.
SIPPs offer access to a wide range of investments such as shares, gilts, investment trusts, unit trusts, investment trusts and exchange-traded funds (ETFs).
You can usually manage your SIPP online, so you can buy and sell investments whenever you want to. However, you’ll need to consider the impact of charges as there may be set-up charges and dealing costs on top of annual charges for the funds and other investments you choose.
This depends entirely on your individual circumstances, and also on how confident you are in managing your investments.
Broadly speaking, some of the pros of SIPPs vs other types of private pension include greater flexibility when it comes to choosing your investments, which could translate through to a higher rate of return.
However, you’ll have to be prepared to take on the burden of researching investments to decide where you want to invest your money. If you’re a seasoned investor then this might be your preferred option, although SIPPs tend to require a more active level of management on your behalf, which takes time.
Some SIPPs may also have higher charges than other types of private pension. These charges include not just a management fee but also charges for changing your holdings.
It’s a good idea to seek advice if you’re considering setting up a SIPP so you can be certain this type of plan it suitable for you.