What to look for in a SIPP
1. What is a SIPP? A Self-invested Personal Pension or SIPP is simply a way of investing over the long term. It is just a more flexible version of a Personal Pension or Stakeholder Pension. Think of it as an invisible ‘tax wrapper’ through which you reach and use your money to buy into investment funds as you would with an ISA.
2. Why is a SIPP better?
There are no guarantees but the ‘best’ pension is normally the one that gives you the most money in retirement and this is about keeping costs down and maximising performance. We can keep charges low at the outset, but one never knows for certain how much growth will be achieved over time. However, attention to several factors can influence how your money grows over time. For instance, if you can see which funds are highly rated by referring to quality research and you are able to switch funds easily and quickly, then maintaining a risk-adjusted portfolio is easier and could lead to greater gains over time.
3. How much will a SIPP cost me?
Cost-wise, it is important to consider not only the cost of the SIPP itself ie, free or charged, but also information such as whether there is any initial charge or switching charge on funds which will either boost or eat into your investment returns.
Also think about the types of investments you want to hold inside your SIPP. SIPPs can hold a massive range of assets as permitted by HMRC but there is no point choosing a SIPP that gives you access to every type of investment, such as directly owned commercial property, if you are not going to use them all. This is the domain of the ‘full’ SIPP for which there will usually be a higher charge.
4. What funds shall I choose?
SIPPs can offer a massive range of fund managers and it is important to choose a blend of funds that is right for your tolerance for risk. While higher risk is normally linked to higher growth in the long term, not everyone is comfortable with higher risk levels. Determining your attitude to risk can be difficult and if you want more help, you might want to consider a SIPP that comes with investment advice.
5. How can I get hold of my money at retirement?
You don’t have to actually retire to start using your pension. You can take tax free cash with or without a taxable income from age 55. The main ways of taking benefits are buying an annuity or using income drawdown.
An annuity is a guaranteed income paid by an insurance company until you die, whenever this may be. Other features can be built in such as income guarantees or provision for a spouse. Drawdown is where you keep your investments where they are and you are allowed to take a certain income amount directly from the pension each year. This is linked, in part, to investment performance and so cannot be guaranteed. Getting good growth into retirement is vital so if you are uncomfortable making investment decisions yourself, a SIPP that gives you access to investment advice is an excellent option.
The Best SIPP fact box
|Transfer-in charges||Free + £500 per person towards exit fees|
|Initial charges on funds||Free on 99% of funds|
|Online fund switching||Free|
|Online share dealing||£7.50 per trade|
|Service fee||Tiered, starting at 0.3%|