With a self invested personal pension or SIPP, you have control over where your money goes and you can invest your pension money in a much wider range of investments than with ordinary pensions, including shares, hundreds of different investment funds and – sometimes – even property.
What can you invest in?
The choice is yours when it comes to what you can invest your self-invested personal pension money in. Investments you can hold within a SIPP include:
1. Shares in individual companies. You can invest in shares traded on a number of different stock exchanges as well as those that aren’t traded publicly (called ‘unquoted’ shares).
2. Gilts and bonds: Gilts are UK government bonds. They’re lower risk than shares (although certainly not risk-free) and can be a useful way of reducing the risk in your pension fund.
3. Commercial property: If you’re a business owner and you have your own premises, it’s possible for your SIPP fund to buy them and rent them to you. You can also use your SIPP to buy commercial property that you don’t have a connection with. You have to have a ‘full’ SIPP to do this. Some cheaper SIPPs aren’t able to hold commercial property.
4. Investment funds: Even though you can put your money into funds if you take out a personal or stakeholder pension, you may only have access to a limited range of funds. With a SIPP you may get access to thousands more funds.
SAVVY TIP: Typically these would be funds managed by the pension provider you’re taking out your pension with and those from another company that the provider has an association or arrangement with.
5. Cash-based funds and deposit accounts.
Who are SIPPs suitable for?
Danny Cox of independent financial advisers Hargreaves Lansdown is one independent financial adviser who believes that many people can benefit from a SIPP. “If you want to have choice about where your pension money is invested, a SIPP is worth considering. If you know you’re happy with the choice offered by pension companies then you may as well go for a stakeholder pension.”
Whereas in the past a SIPP would have cost £1,000 or more to set up, now you can set one up for free. There are two different types of SIPP available on the market:
1. A low cost SIPP: This lets you invest in shares quoted on the stock exchange, funds and gilts, bonds and exchange traded funds etc.
SAVVY TIP: Charges vary but low cost SIPPs may be free to set up and you may not have to pay if you invest money in a number of funds, although you will have to pay dealing costs if you buy and sell direct shares.
2. A full SIPP: This lets you invest in commercial property and unquoted shares as well as all the other investments.
SAVVY TIP: Full SIPPs may cost up to £500 to set up and around £200-£500 a year to run. You may also have to pay up to £1,000 to transfer commercial property to a SIPP (as well as legal and survey fees etc).
A word of warning
Although self invested personal pensions give you a lot more choice about what you invest in, most low cost SIPPs don’t offer you advice.
– That means you have to make your own decisions. If you don’t feel comfortable making decisions about where you invest your money on your own, you’ll have to pay for advice separately.
– Watch out for the charges It’s definitely not the case that the lowest charges are always the best option, but there’s no point in finding out that the cost of a SIPP and the cost of advice means your money isn’t generating much of a return.
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