Self Invested Personal Pension
A "self invested personal pension", or SIPP, is a form of personal pension plan which is gaining popularity. If we start by considering the alternative, the personal pension, we can draw out the advantages more clearly. A personal pension is a contract, always offered by an insurance company, and almost always offering only funds run by that insurance company. (Some companies offer “external funds” but these funds are always the insurance company’s own funds and should not be confused with the real funds operated by the fund managers). The personal pension contract can only invest in the funds offered by the insurance company.
In many cases, when you wants to take benefits by way of income drawdown, you need to move your plan to another contract – an income drawdown contract and this can lead to fresh sets of charges. Such a contract is often a SIPP - so it pays to plan well ahead.
A SIPP by comparison can be run by an organisation other than a life insurance company. It may hold a wide range of investments including:
- Shares
- Cash
- Gilts
- Corporate bonds
- Unit trusts/OEICS
- Commercial property
- Other permitted assets
You can have a discretionary fund manager to look after your money or you can manage your own investments as you wish.
The attraction for many business owners is having their own property growing in value free of tax and with full tax relief contribution for the purchase price.
The SIPP can borrow, although the borrowing is effectively limited to one-third of the purchase price of the property. SIPPs can join together to buy a property so that the individual directors of a company can buy their property by combining with other director SIPPs.
One of the key advantages of the SIPP is its very low operating costs. The cheapest cost about £120 to set up and less than £200 a year to operate.
If you want to take advantage of income drawdown (now called "unsecured income") , a SIPP is an ideal vehicle. Remember that drawdown can be a risky way to retire.
However the SIPP is not for everyone. There is no point in having a SIPP in order to enjoy the flexibility of investment if you have no intention of buying any of the investments which are permitted.
If you simply want a low cost regular savings plan, it would be far better to have a stakeholder-charged personal pension contract.
Whatever you decide make sure that your advisers are SIPP or pensions experts and that someone at the firm has a G60 or equivalent qualification.
If you would like advice about a SIPP, contact Andrew or John.
