Self-invested Personal Pension advice (SIPP)

What is a SIPP pension?

A SIPP (Self-Invested Personal Pension) is a type of personal pension for an individual who wants to make investment decisions and manage those investments on an ongoing basis. They are commonly used by individuals when working with discretionary fund managers and financial advisers because of the freedom of investment choices that they offer. These investment choices include funds, discretionary managed funds and commercial property.

How does a SIPP work?

A SIPP is offered by insurance companies, investment managers and usually as part of a wrapper / platform to house investments. SIPPs operate under the same contribution rules as other personal pensions, so you can claim tax relief on £40,000 of contributions per year.

What are the advantages and disadvantages of using a SIPP?

There are many advantages of using a SIPP including:

• Investment choice
• Ability to utilise different investment strategies under one vehicle
• SIPPs come with a full range of retirement options, including flexi-access drawdown
• You can use your SIPP in combination with someone else, for example, to purchase commercial property, so they are useful for company directors

However, there are disadvantages, including:

• Complexity
• Charges
• You need in depth of knowledge to truly understand the investments you’re making and you need to maintain this knowledge (for example, whether investments are covered under the FSCS)

Should you invest in a SIPP?

If you’re someone who wants to make investment decisions and plan for your own retirement then a SIPP could be a suitable pension for you. Likewise, if you generate income from multiple sources or a complex financial position, SIPPs may work favourably for you. They allow you to be efficient in your tax planning and if you’re looking to work with a discretionary fund manager and / or a financial adviser, it will make managing your investments easier, while bringing your pensions together may be easily done within a SIPP.

All of these advantages bring complexity with them though. If you’re looking for something simple and you’re not comfortable with the risk of loss that comes with making your own investment decisions, then a SIPP might not be for you. If you choose to work with a financial adviser, they may recommend a SIPP as the most appropriate vehicle for you, but when you partner with an adviser they will take on the complexity of the SIPP on your behalf.