Self Invested Personal Pensions

SIPP stands for Self Invested Personal Pension.

It is a personal pension plan but has the added advantage that you, as the investor, have complete control over the investment strategy and investments contained in the pension plan.

Personal pensions are usually provided by insurance companies and they often limit your choice of investment to a number of investment funds, often managed by the same company.

A SIPP should be viewed as a tax efficient wrapper into which you can invest almost any type of financial asset. Although a SIPP may be provided by an insurance company, it can also be provided by specialist SIPP administrators.

A SIPP provider will establish the SIPP wrapper which will receive all the tax advantages that are enjoyed by a standard personal pension. Once the SIPP has been set up, you invest your lump sum or begin investing regular contributions which will initially be placed in a cash account.

The list of permitted SIPP investments is extensive and includes:

• UK and international company shares
• UK and international government and company debt (gilts and corporate bonds)
• Collective investment schemes such as unit trusts, pension funds, investment trusts
• Commercial property
• Deposit funds and currency
• Commodities
• Futures and options
• Warrants
• Derivatives

You will receive tax relief at your highest rate on any contributions that you make within the annual allowance.

You usually pay tax if savings in your pension pots go above:

100% of your earnings in a year – this is the limit on tax relief you get
£40,000 a year – check your ‘annual allowance’
£1.03 million in your lifetime – this is the lifetime allowance

Even if you are a non-taxpayer the government will pay the basic rate of tax on top of contributions up to £3,600 a year.

If you are unsure about whether to invest in a SIPP, further advice can be sought from an independent financial adviser.

Generally, SIPPs are suitable for investors who want to be in control of their pension investments, have a wide choice of investment options, require flexibility over their investment strategy, and are comfortable making their own investment decisions.

There will be some fees involved with a SIPP, with charges varying between providers. There may also be initial and annual management charges for specific investments made.

There will also be a charge if you receive financial advice about SIPP investments. However, many SIPPs are primarily non-advised services so there is no financial adviser costs.

If you have an existing pension plan this may be eligible to transfer into a SIPP but this will depend on the type of existing schemes you have. You should seek advice if you are not sure what to do.