Self Invested Personal Pension (SIPP)

A SIPP is a type of personal pension plan. It follows the same basic rules with regards to contributions, tax relief and eligibility. The difference is the investment freedom that a member has and the ability to borrow against the fund for further plan investments.

A conventional personal pension generally involves the plan holder paying money to a pension company for investment into that company’s funds. The choice of investments is limited to that offered by the plan provider.

A SIPP allows the plan holder much greater freedom in what to invest in and for the plan to hold these investments directly. The plan holder can have control over the investment strategy or can appoint a fund manager or stockbroker to manage the investments.

The SIPP itself is established under a trust. The trustee controls the investment under instruction from the member. It is possible for the plan holder to be the trustee. If this is the case, an approved administrator must be appointed to carry out investment transactions.

A SIPP can borrow money against the value of the fund for investments that the trustees consider will benefit the scheme (for example, commercial properties). It can borrow, at any time, up to 50% of the scheme’s assets.

One of the main reasons for the popularity of SIPPs is the control and flexibility they provide. Your SIPP will be unique to you, investing in whatever you choose, for however long you like.

You have the ability to change your investments or add new ones whenever you feel it necessary. To a large extent, its overall performance will be in your control, rather than reliant on the performance of one particular fund or company.

Key Features of a SIPP

Control – you decide in what and where you invest
Flexibility – you can change or add in new investments whenever you like
Performance – you have access to a wide range of funds or other investment vehicles, increasing your overall opportunity to grow your investment.
Diversification – by having a range of different investments you are spreading your risk, rather than holding ‘all your eggs in one basket’
Tax Efficiency – like other personal pensions, your contributions receive income tax relief at the highest rate. All investments held in the scheme are exempt from income and capital gains tax
Transparent Charges – the SIPP wrapper is separate from the contents and as such, has separate, often fixed charges
Choice on Retirement – as with other pensions, you can choose from phased retirement, income drawdown and open market annuities

However, SIPPs are not suitable for every investor and in terms of charges can be more expensive than a stakeholder or personal pension.