SIPP is short for Self Invested Personal Pension and is a do-it-yourself pension scheme that allows you to choose how your retirement savings are invested.
Sipps allow you free rein as to where your money is invested whereas standard personal pensions tend to have quite narrow choices.
The beauty of Sipps are that if your funds start to struggle, you can take full control and switch the investment to other areas to make your nest egg grow further.
Almost anything can be placed into a Sipp – from unquoted shares to your own commercial property. With contributions now as low as £50 per month or as a transfer of £5,000 from another pension plan, Sipps are now available to almost everyone.
So is a Self Invested Personal Pension for you? The Financial Services Authority (FSA) has warned that some people have been given the ‘hard sell’ when it comes to Sipps and some of these may have been better off with a simple stakeholder pension of personal pension. As with any financial investment, you really need to do your research to ensure you are getting the financial product that best suits your needs.
If you are considering a Sipp, you will need to ensure you have the time to fully research what you are planning to put into it.
A Sipp will allow an investor to control all aspects of their pension planning giving them flexibility and diversification, which can sometimes be limited in a more traditional pension plan. However this means that you will need to fully understand what you are investing in.
Sipps also tend to be quite cost effective – many insurance based products are percentage driven meaning that as the fund grows in size, so does the costs. Sipps, on the other hand, are typically fee-based so no matter how big the fund, the same fee is payable and therefore as the fund increase, the percentage paid actually becomes smaller.
Low-budget Sipps often don’t come with advice and this means you are really taking on a greater level of risk and you need to ensure you are really very financial savvy. There are many low-cost Sipps around and if you have £50,000 or less to invest, these are probably the Sipps for you.
At the other end of the scale, there are the high-end advice-drive Sipps, however these tend to be if you have a pot of £200,000+. High-end Sipps will be more expensive however they tend to come with advice and you do get what you pay for.
If you are planning to go down the Sipp route, there are eight questions you need to ask:
1. What is the Sipp set-up fee?
2. What is the Sipp annual management fee? Usually, this is a flat fee.
3. How much are the annual fees on the Sipp funds? There are usually ongoing charges of around 1.5%.
4. How much are the initial charges on the funds – Oeics and unit trusts?
5. How much are dealing charges on shares and investment funds?
6. How much are the transfer fees? Are there charges levied for moving money, funds or shares into the Sipp or to another pension provider?
7. What rate of interest will I get on any cash left in the Sipp?
8. Are there any other charges e.g. costs for buying an annuity, costs for paying out on death?
Category: Savings & Investments
Tags: Finance, Pensions, Savings
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