A Self-Invested Personal Pension (SIPP) available to UK residents only, is a type of do-it-yourself pension plan that allows you to choose your own investments from a full range of investments approved by HM Revenue and Customs. SIPPs make it easy to manage your accounts and can be done online, making use of investment brokers or fund supermarkets.  SIPPs are a low cost, affordable, flexible, and tax efficient way to save.

SIPPs operate in a similar manner to standard personal pensions.  When you invest in one, the government will subsidise your pension with tax relief.  Once the money is invested inside your SIPP, you will avoid paying capital gains and income tax in the UK.

Under current UK legislation, when you reach the age of 55 (or 57 from 2028), you can start withdrawing money from your self-invested personal pension, even while you are still working. You can normally take up to 25% of your total funds tax free, but any withdrawals above this will be taxed as income.

Not all self-invested personal pensions are the same.  There are four different types of SIPP, each with their own rules for investing, methods of operation, advantages, and disadvantages.

Pure/Full SIPPs:

Pure or Full SIPPs allow the investor complete access to the various asset classes available. Investors will often be offered the advice of an investment team to help you make the right choice for your financial situation, but they have the highest charges and are really only suitable for people with large pension funds.

Lite/Single SIPPs:

Lite or Single SIPPs are investments in what is usually a single asset and may be more suitable for people with smaller pension savings.  These can often be transferred to a Full SIPP in the future if you decide that this will better suit your plans and finances.

Deferred SIPPs:

In Deferred SIPPs, most if not all of the assets are usually maintained in insured funds.  Investor activities, such as withdrawals, are deferred until a predetermined date.  In recent years, there has been a diversification of deferred plans, offering investors greater freedom of choice of various funds options.

Hybrid SIPPs:

As the name implies, Hybrid SIPPs allow for a mix of self-invested and insured funds in an asset. Usually you’ll have to pay a substantial amount of money into the insurance company’s own funds before you’re allowed to choose your own assets.

SIPPs are a safe way to build a portfolio. Since SIPP providers do not normally directly own your investments themselves, your money will still be safe in the unlikely event that a trust or operator of a fund were to go bankrupt.  Also, SIPPs are still insured for such an eventuality should a SIPP provider go bankrupt, but this only applies to the SIPP providers themselves, and does not cover the possibility of your investments failing or underperforming. Whenever you are making any decisions about your pension, be very wary of the possibility of pension fraud and always do your due diligence.

So, are SIPPs the most suitable option for you?  This depends on your personal circumstances, your investment experience, and your understanding of the economy and financial markets. Some investments that can be placed in SIPPs are very risky and can fall as well as rise in value. It is always worthwhile to seek the advice of a professional independent financial advisor before investing your money. You can schedule a no obligation call with an independent financial advisor by clicking here. (UK residents only)