SIPP use on the rise after pension transfer activity explosion
Investments made through pension wrappers have reached a new high of £13.4bn in the third quarter of 2017, up 66.3 per cent on last year.*
The figures showed the amounts coming into pensions through transfers was particularly high. For instance, transfers into self-invested personal pensions (SIPP) more than doubled over the past 12 months to reach £1.9bn.
So, SIPPs are being used increasingly as a vehicle for pension investments, but what is a SIPP and when should they be used?
Self-invested personal pensions are a type of personal pension. They are an individual contract between you, the investor, and the pension provider. However, SIPPs offer much wider investment powers than are generally available for personal pensions and group personal pensions.1
SIPPs are designed for people who want to manage their own fund by dealing with, and switching, their investments when they want to.
The wider investment powers can allow you to invest in a wide range of assets, including:
- Quoted UK and overseas stocks and shares
- Unlisted shares
- Collective investments (such as OEICs and unit trusts)
- Investment trusts
- Commercial property and land
They’re also being increasingly used for transfers out of defined benefit pension schemes, as transfers are becoming more popular due to both high transfer values and pension freedoms.
When might they be unsuitable and what should you be wary of?
SIPPs are designed for people who want to manage their own fund by dealing with, and switching, their investments when they want to. In the vast majority of cases they will be managed by your adviser on your behalf.2
However, SIPPs can also have higher administration charges than other personal pensions or stakeholder pensions, as well as fund and dealing charges – so look out for these.
For these reasons, SIPPs tend to be more suitable for large funds and for people who are experienced in investing or who use a financial adviser. This might explain why they’re finding popularity among advisers with clients that have successfully transferred out of a final salary pension scheme.
*These pension investments include outright investments into a pension, as well as transfers in from other pension products and the data covers about 90 per cent of the UK’s main life and pensions companies.3
The Financial Conduct Authority does not regulate trust advice and some aspects of commercial mortgages. The value of your investment can go down as well as up and you may not get back the full amount invested.