A Self Invested Personal Pension (SIPP) is the most flexible pension wrapper available. It comes with all the usual tax advantages of a pension wrapper, but with the flexibility of allowing almost any asset to be placed within it (tax relief only applies to certain assets).
Due to the flexible nature of a SIPP, they are usually more expensive than other pension schemes. Although that is changing with the advent of more online administration. The fees are set by the provider themselves, so it is important to check and compare which is the correct SIPP for you.
One of the defining factors for most SIPP’s is ease of use. Many SIPPs these days will have some form of investment platform attached to it. These fund supermarkets make it easy to buy and sell assets, from within your SIPP wrapper.
There are also more specialised SIPP’s for experienced investors. Those that wish to trade assets such as futures or commodities live on the global exchanges, can choose a SIPP that is linked to a financial broker. Interactive Brokers is one company that I know can be linked up to a SIPP account, allowing for assets to be trade directly from the pension wrapper.
With standard personal pension schemes, your investments are managed for you within the pooled fund you have chosen.
SIPPs are a form of personal pension that give you the freedom to choose and manage your own investments. Another option is to pay an authorised investment manager to make the decisions for you. SIPPs are designed for people who want to manage their own fund by dealing with, and switching, their investments when they want to.
However, SIPPs can also have higher charges than other personal pensions or stakeholder pensions.
For these reasons, SIPPs tend to be more suitable for large funds and for people who are experienced in investing.
The HMRC allows any asset to be placed into a SIPP. However the assets that are not subject to a tax charge are as follows :
- Stocks and shares listed on a recognised exchange
- Futures and options traded on a recognised futures exchange
- Authorised UK unit trusts and open-ended investment companies and other UCITS funds
- Unauthorised unit trusts that do not invest in residential property
- Unlisted shares
- Investment trusts subject to FCA regulation
- Unitised insurance funds from EU insurers and IPAs
- Deposits and deposit interests
- Commercial property (including hotel rooms)
- Ground rents (as long as they do not contain any element of residential property)
- Traded endowments policies
- Derivatives products such as a contract for difference (CFD)
- Gold bullion, which is specifically allowed for in legislation, provided it is “investment grade”
There are certain assets that are permitted, but which come with heavy tax penalties. Hence many SIPP providers do not allow them:
- Tangible movable property (whose market value does not exceed £6,000)
- Exotic assets such as vintage cars, wine, stamps, and art
- Residential property
As with all pension wrappers, the cash within the wrapper is fully accessible at the age of 55. Any contributions made to the SIPP are eligible for tax relief at your marginal rate. There is no taxation on capital growth or income within the wrapper (excluding any dividend taxes).
A SIPP is not necessary for everyone. Most pension holders would find more than enough investment options with a standard stakeholder pension, which has Government guaranteed low fees. It is only those that would like more complex and diverse investments that would really benefit from the flexibility of a SIPP.