Self-Invested Personal Pensions (SIPPs)
Self-Invested Personal Pensions (SIPPs) remain one of the most flexible ways to invest for retirement. A SIPP is simply a Personal Pension arrangement that is established in such a way that the investor has a much wider investment choice.
Often slipped into conversation at dinner parties as ‘the one to own’, SIPPs are a popular choice for many investors. Unlike traditional pensions run by insurance companies, these schemes have a huge investment choice and are controlled by the individual or by an appointed adviser.
Investments can take the shape of FCA authorised collective funds such as Unit Trusts or ICVSs, stocks and shares listed on recognised stock exchanges, bank accounts, Trustee Investment Plans (TIPs) and even commercial property.
SIPPs established via a ‘platform’ or ‘wrap’ will allow an investor or adviser to research and build a portfolio from a huge choice, often thousands, of funds. The resulting pension will look and feel more like an ISA than a pension. In contrast, many classic personal pensions such as stakeholder arrangements will have a far smaller and restrictive choice of funds.
Experienced investors who have the specialist knowledge to research and purchase individual company shares or fixed interest securities can also do so using the money in their SIPP. The SIPP provider will provide a link to a partnering online stockbroking account, allowing the investor to make his or her own buy and sell orders in real time.
Some SIPPs can also be used to purchase commercial property, which can be particularly useful for business owners wishing to use the value of the retirement benefits to purchase premises which in turn can be let back to the business. The Government had originally suggested that they would allow the purchase of ‘Buy-to-Let’ property, causing much excitement in the industry. However they quickly reconsidered and decided against it, much to the disappointment of many eager landlords!
Another key feature of most SIPPs is the ability to operate ‘drawdown’. Drawdown is a means to simply draw an income from the accumulated funds, instead of buying an annuity. There are a number of advantages and disadvantages of this method of generating retirement income, so needless to say professional advice should be sought here.
SIPPs are certainly not for everyone. There are quite often additional costs for the enhanced features and flexibility that some of these contracts have. As impressive as these new options may be, if never used, they simply serve to reduce benefits through the gentle erosion of capital.
In the right circumstances however, SIPPs can be powerful tools to effectively build up and then de-cumulate assets during an individual’s lifetime. We advise private clients on the use of SIPPs and will always fully explore the use of all pension options before opting for a full SIPP, no matter how fashionable they might be!