Self Invested Personal Pensions (SIPPs)
What are they?
SIPPs are money purchase type pension plans that allow you to hold any investment that is allowed to be held within a pension.
The big advantage of using a SIPP is that you're not shackled to a pension provider's own range of funds, which might be mediocre (many are). Think of it like a wrapper
that allows you to cherry pick the best investments in the marketplace within your pension.
However, not all SIPPs are created equal. Some, usually the most expensive, allow every conceivable investment to be held (including commercial property). Others offer a
wide enough range to keep most investors very happy, while a few are more limited and don't really deserve to be called SIPPs at all.
Also, this comes at a price. While SIPP costs have fallen in recent years, you could still end up paying rather more than a stakeholder. They're only really worthwhile
if you'll actually make good use of the investment freedom offered.
Who can own one?
Almost anyone, including children, provided they're normally resident in the UK. You can contribute even if you already contribute into another pension, subject to the rules on overall pension contributions.
How much can I contribute?
The minimum varies between SIPP providers, but the lowest is typically around £1,000 for lump sums and £50 for monthly savings.
The maximum annual amount, while still enjoying tax relief, is 100% of your UK earnings (but no greater than the annual allowance, see the
Candid Money guide to pension rules), or £3,600 if that is greater. This means that non-earners, including children, can enjoy basic rate tax relief on contributions up
to £3,600 a year, i.e. they only need to pay £2,880 to enjoy a full £3,600 contribution - although SIPP charges might make this
prohibitive.
You're also allowed to contribute into someone else's SIPP, e.g. your spouse or grandparents contributing for their grandchild. They'll get the tax relief at basic rate, it won't affect your own tax bill.
How flexible is a SIPP?
This depends on the provider because, unlike stakeholder pensions, there is no set of rules. However, it's a good idea to make sure you can stop and start payments as you
wish without penalty and transfer your pension fund to another provider without a prohibitive penalty.
How much will it cost?
SIPP charges vary widely between providers, but in general there are two types: lower cost SIPPs that offer access to funds and shares and more expensive SIPPs that also offer access to
other investments such as property and savings accounts. For most a low cost SIPP will suffice, so don't overpay for investment options you may never need.
The types of potential charges are more complex than stakeholder, so make sure you thoroughly understand these before signing on the line. Expect to pay charges for the Sipp
'wrapper' then charges for the investments held inside.
| SIPP Charges - What to expect |
| Charge Type |
Typical Level |
What is it? |
| Plan Set Up |
£0 - £500 |
Initial plan charge regardless of the underlying investment(s) |
| Plan Annual |
£0 - £1,000 |
Annual plan charge regardless of the underlying investment(s) |
| Fund Annual |
0.10% - 2.00% |
Annual charge on any fund held |
| Sharedealing |
£7.50 - £100 per trade |
Cost per trade to buy and sell shares |
| Examples shown for guidance only, other fees may apply so always check before buying. |
Charges could also apply when you buy an annuity, transfer to another pension, draw an income ('drawdown'), or die before you take benefits. These should all generally be below £100, if they're significantly more be wary.
Investment choice
This should be the sole reason you choose a SIPP over a stakeholder or conventional personal pension. The main allowable investments are:
- Shares listed on any stock exchange.
- Gilts and corporate bonds.
- Unit trusts, investment trusts and Oeics.
- Exchange trade funds (ETFs).
- Hedge funds.
- Insurance company funds.
- Traded endowment policies (TEPs).
- Gold bullion.
- Bank accounts.
- Commercial property.
While it's technically possible to hold residential property, antiques and art etc. in a SIPP, penal tax charges mean its simply not worth it.
The cheapest SIPPs on the market generally offer a single bank account (paying negligible interest) and access to shares, unit/investment trusts and Oeics. For many, this is sufficient.
Read the Candid Money guide to pension investment choice to find out more.
Investing in property
You can invest in commercial (not residential) property within your SIPP. This is most practical if you wish to hold your business premises in your pension to take advantage of pension tax reliefs. However, bear in mind the costs of doing so
are likely to be thousands of pounds initially with annual charges of hundreds, if not thousands of pounds.
You can take out a loan within your SIPP for up to 50% of the pension value.
What happens when I retire?
You can take up to 25% of your pension fund as a tax-free lump-sum. The balance is used to either purchase an income for life using an annuity or can be left invested with an income drawn as required.
To find out more read the taking an income page.
What happens if I die?
This depends on your age and whether you've already taken pension benefits. For full details see the pension rules page.
Ways to buy a SIPP
SIPP ProviderFinancial AdviserDiscount Broker
Low cost SIPP providers (typically fund platforms/supermarkets) usually offer their SIPPs direct to the public and, to a lesser extent, via financial advisers. Higher end SIPP providers largely sell
their product via financial advisers.
You need to be careful here. If your pension needs are complex you should find an independent adviser who specialises in pensions. However, you'll also want an adviser who specialises
in investments to help you make the most of your SIPP. Trouble is, good advisers who specialise in both are less common, so be prepared to choose carefully.
If your pension situation is straightforward, then consider choosing the SIPP yourself (a fund supermarket SIPP is likely to suffice for many) and just decide whether
you need a financial adviser to recommend the underlying investments for you. If an adviser recommends a fund of funds unit trust then be wary, this is probably because it
makes their life easier (or they're not an investment specialist) and not because it's the best option for you.
Costs are broadly comparable to buying direct from an investment platform/supermarket. Discount brokers don't give advice, but are well worth considering if you're comfortable picking a low cost SIPP
and the investments to hold within.
SIPP Pension Jargon
Here's some of the more common SIPP pension jargon you might come across:
| SIPP | Self Invested Personal Pension, a money purchase type pension that allows you to hold any investment that is allowed to be held within a pension. |