A SIPP is a type of defined contribution pension that you use to save for retirement. That means the amount you’ll receive in retirement is dependent on factors such as how much you pay in, investment performance of the fund, the length of time you invest for, how you choose to take your retirement income and the fees and charges levied by your fund.
SIPPs are personal pensions. This means you arrange them yourself and are in charge of making the contributions. While sometimes your employer might offer to pay into your SIPP, they have no obligation to do so.
You’re get far more control over the management of a self-invested personal pension and the investments within it than would be the case if you opted for a pension such as a stakeholder pension.
Essentially, SIPPs are a DIY option where you choose from a wider variety of investments yourself and manage the fund according to your wishes.
The HMRC rules on SIPPs are broadly the same as for other types of personal pension, with tax relief of up to 45% on what you pay in and no income tax or capital gains tax to pay on growth of investments within the wrapper.
SIPPs are split into two broad categories: full SIPPs and SIPPs. Both are execution-only, meaning all trades and purchases you make within your fund are down to you, unless you pay extra for financial advice within the fund.
A full SIPP has the widest range of available investments but also has the highest charges, such as set-up fees, annual management fees and trading fees. They tend to be for larger pension pots and for those who want the most freedom with their investments.
Some full self-invested personal pensions may impose a minimum monthly contribution into your pot, or a minimum initial contribution.
As a step down from a full SIPP, a SIPP tends to have a more limited range of investments, which helps keep costs lower than for full SIPPs.
There are a variety of factors to look for when you compare self-invested personal pensions, such as:
There are also a range of other points to consider when opening a SIPP or managing one on an ongoing basis. If you’re not sure about whether a SIPP is the best pension option for you or need any further help, we’d suggest seeking professional financial advice such as that on offer from the team at Drewberry.
Anyone under the age of 75 can pay into a SIPP and you don’t have to be earning to own one.
Even low or non-earners will receive 20% tax relief on any contributions they make up to the statutory maximum contribution of £3,600 gross a year. This will require a net payment of £2,880 with the additional £720 per year being provided by HMRC in tax relief.
This said, given fees and charges on SIPPs are higher than for other personal pensions such as stakeholder pensions, non-earners and those with smaller funds may be better off using a stakeholder pension instead, which offers maximum fees capped by legislation.
If you’re planning on transferring an existing pension into a SIPP, first find out whether there will be any penalties imposed by your current provider for switching (and whether your intended self-invested personal pension provider offers any compensation towards the cost of such charges).
A SIPP may be a good pension option for you if you’re:
Conversely, a SIPP is unlikely to be the best option for those without notable investment experience, those with smaller pension funds, or those who are less keen to make their own investment decisions.
This will depend on the SIPP provider in question and the type of self-invested personal pension you’re contemplating.
Some low-cost SIPPs will accept monthly contributions as low as £25 or lump sum payments starting from as little as £100, while others will have a higher minimum. Full SIPPs tend to have higher minimum payments, either regularly or a one-off contribution, especially if you’re transferring in from another provider.
AJ Bell was founded in 1995. As well as SIPPs, AJ Bell is also an award-winning provider of ISAs and dealing accounts. The AJ Bell Youinvest SIPP is the company’s execution-only, low-cost variant of a personal pension.
Based in Bristol, Hargreaves Lansdown was founded in 1981. It offers ISAs, pensions, investments, financial advice and share dealing services.
Alliance Trust was founded in 1890 and provides full SIPPs, as well as ISAs and investment dealing accounts.
Bestinvest was founded in 1986. It provides execution-only investment services as part of the Tilney Group, including a low-cost SIPP.
Fidelity International was founded in 1969 as the international arm of Fidelity Investments, a financial services corporation based in Boston, Massachusetts. It became independent from Fidelity Investments in 1980.
Fidelity’s SIPP is a low-cost variant that charges a combination of percentage and flat-rate annual service fees depending on your investments.
Halifax is a former building society founded in 1853 that demutualised to become a bank in 1997. It is today part of the Bank of Scotland Group.
Rowanmoor is the UK’s largest independent small self-administered scheme (SSAS) provider and a provider of bespoke self-invested personal pensions (SIPPs).
Standard Life – known as Standard Life Aberdeen since March 2017 – is a Scottish investment company headquartered in Edinburgh. In March 2017, Standard Life agreed to merge with the investment company Aberdeen Asset Management and became Standard Life Aberdeen.
The above table is a list of top UK SIPP providers; others are available in the market and the best SIPP provider for you will depend on your individual needs and circumstances. That’s where the value of pensions advice comes in.
The best SIPP investments for you and your pension depend on your needs, objectives, risk profile and circumstances.
It’s hard to generalise and say which SIPP investments will be best for you without looking into your individual circumstances. However, broadly speaking, self invested personal pensions can include a far wider range of investments than a personal pension. The investments that can be held in a SIPP include:
There are a few things in which a self invested personal pension (SIPP) can’t invest. These include:
For help choosing investments in your SIPP, consult a financial expert. The various different investments that you have open to you when you invest in a SIPP can be overwhelming when you first look into it and it can be hard to know where to start.
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