Self-invested personal pensions (SIPP)
A self-invested personal pension (SIPP) is a tax-efficient pension wrapper that lets you manage your own investments for retirement.
Like other kinds of personal pension, SIPPs give you access to pension tax relief up to the annual and lifetime limits, shelter your investments from Income Tax and Capital Gains Tax, and let you access the money from age 55. The difference is that SIPPs allow a great deal more flexibility to choose your own investments.
What kind of investments can go in a SIPP?
You will need to research your investment options carefully and make your own decisions. The kind of investments that can be held within most SIPPs include:
- Investment funds (unit trusts and OEICs)
- Investment trusts
- Exchange traded funds
- Government and corporate bonds
The kinds of investments you can hold depends on whether you have a “low-cost SIPP” or a “full SIPP”. Full SIPPs offer more exotic investment options that low-cost SIPPs – for example, you can hold commercialy property within a full SIPP – but they’ll also cost more in charges, and are intended for sophisticated investors only.
Can you hold property in a SIPP?
While it is theoretically possible to hold any kind of property in a SIPP, any investment deemed as residential property will incur a tax charge of at least 55 per cent. There are some limited and very particular exemptions for this (ask your financial adviser) but for practical purposes investing in buy-to-let or residential property within a SIPP is not viable. If you believe in property as an asset class, a low-cost SIPP may make it possible to buy shares in real estate investment trusts (REITs) which invest in property. Remember that, as with bricks and mortar, these investments tend to be less liquid than other stock market traded investments.
For the purposes of this guide, we will focus on the low-cost SIPP.
How much do SIPPs cost to set up and run?
As with all investment accounts, different platforms have different charges for running a SIPP. These could include setup fees, platform charges and dealing charges (each time you buy or sell an investment).
If you decide to transfer your pension savings out of the SIPP, there may also be exit fees, as well as potential drawdown fees when you come to take a retirement income from your pot.
You should compare charges made by different SIPP providers and the services that they offer before you open a SIPP. However, in spite of the possible charges outlined here, SIPPs are still considered a low-cost pension option.
- If you are interested in having your SIPP online and choosing the investments yourself, you can use an investment platform such as Hargreaves Lansdown, Fidelity or Bestinvest to open a SIPP. Compare SIPP platform charges here
- If you would prefer to have a financial adviser recommend investments for you and help run your SIPP, speak to a financial adviser for a free initial discussion.
Last updated: 08 June 2015