A Self Invested Personal Pension or SIPP, is a type of pension scheme which offers more flexibility than traditional personal pensions. They offer the ability to hold a wider range of investments for those who want to broaden their portfolio. The rules for what is allow to be held in a SIPP are set out by HM Revenue and Customs (HMRC), as investments benefit from certain tax breaks enjoyed by pension schemes.
Some investment which are commonly held include:
- Authorised UK unit trusts, Investment trusts and open ended investment companies
- Single Company Shares
- Commercial Property
- Exchange Traded Funds (ETF’s)
Items which are not allowed include residential property, this includes buy to lets and any movable exotic assets like antiques or classic cars.
The rise in technology and the desire for people to manage their own financial affairs have helped SIPP providers grow since their inception in 1990. Online SIPP access allows people to buy and sell shares, funds and ETF’s at the touch of a button. It has allowed people to be in more control of their investments and be responsible for its value.
SIPP’s are commonly used for income drawdown to manage funds and withdraw income. SIPP’s therefore allow for an easier transition at-retirement, as there aren’t as many hoops to jump through to start drawing an income or tax free cash.
Ownership of the pension funds are usually held through an individual trust or in conjunction with the SIPP provider. This is unlike personal pensions where the provider has control and ownership over the assets as a trustee.
With the emergence of online SIPP providers, many people are consolidating older work place schemes and smaller personal pensions into one place to have greater visibility.
Some providers have split SIPPs up into two general categories. A low-cost SIPP, which provides access to the usual range of investment funds, and a Full SIPP, which is probably for a more sophisticated investor. The Full SIPP allows commercial property to be held in it but would also come with higher charges.
If you’re wanting more control over your investments in retirement and are thinking about using income drawdown, we can help advise you on the best SIPP providers based on your circumstances.