A self-invested personal pension (SIPP) is a pension ‘wrapper’ that holds investments until you retire and start to draw a retirement income. It is a type of personal pension and works in a similar way to a standard personal pension. The main difference is that with a SIPP, you have greater flexibility with the investments you can choose.
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. 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.
Most SIPPs allow you to select from a range of assets in which to invest, including:
• Individual stocks and shares quoted on a recognised UK or overseas
• Government securities
• Unit trusts
• Investment trusts
• Insurance company funds
• Traded endowment policies
• Deposit accounts with banks and building societies
• Some National Savings and
• Commercial property (such as offices, shops or factory premises)
These aren’t all of the investment options that are available – different SIPP providers offer different investment options. Residential property can’t be held directly in a SIPP with the tax advantages that usually accompany pension investments. But, subject to some restrictions (including on personal use), residential property can be held in a SIPP through certain types of collective investments, such as real estate investment trusts, without losing the tax advantages. Not all SIPP providers accept this type of investment though.
New pension freedoms introduced in April 2015 mean you can access and use your pension pot in any way you wish from age 55. However, SIPPs aren’t appropriate for everyone, and you should seek professional advice if you are considering this option.