SIPP (Self Investment Personal Pensions) v Other PensionsWritten on March 14, 2017 by Kirk Rice LLP
The Question:
I have a personal pension, but a number of my friends have SIPP’s which they seem to think are better and I am considering transferring my pension to one. Why are they better?
Kirk Rice LLP answers:
A Self Invested Personal Pension (SIPP) operates to the same set of pension rules as a Personal or Stakeholder Pension which would be alternatives you could consider. The maximum contribution limits, retirement age and the amount of pension commencement lump sum as a few examples will be the same. The differences will broadly boil down to charges, investment choice and minimum contribution limits. A Stakeholder Pension generally has the lowest minimum contribution and charges. The only charge is a Fund Management Fee, which under Stakeholder rules can be no more than 1.50%pa (of the fund value) for the first 10 years reducing to 1.00%pa or less thereafter.
In reality, most New Stakeholder Pensions charge a lot less than this. Stakeholder Pensions have the fewest funds to choose from and in the main they will be managed by the pension provider. A Personal Pension will generally have higher minimum contribution limits and possibly higher charges. This will usually be in the form of an increased Fund Management Fee although this will depend on the funds you invest in of which there will be a wider choice available. This will include funds managed by the provider as well as other Fund Management Groups they have agreed to include within the fund choice.
Greater fund choice means you may be able to access funds that historically (no guide or guarantee of future performance) have performed better or invest in particular areas not available via a Stakeholder Pension. An example, may be a Technology Fund. A SIPP will usually have the highest charges and potentially contribution limits. But it will also provide the widest range of investment options. You will be able to access well over 3000 investment funds and you can also invest in individual company shares and structured products. You can even buy commercial property; A SIPP is often used by business owners to buy the premises the business operates from.
A SIPP is not necessarily better than the other pensions available it just gives you more investment choice. However, I often come across people who have a SIPP but they are invested in funds they could have accessed using a Personal or possibly even a Stakeholder Pension for lower cost. They are paying for the greater investment choice offered by the SIPP but not actually using it. SIPP’s are good, but not for everyone and ultimately I would suggest that you get advice from an Independent Financial Adviser who will be able to advise you on the best pension type for you.
Click here to download our Key Guide ‘Investing for Income When you Retire’ for further reading.
Any reader interested in discussing this topic further can telephone Peter Sharratt at the Ascot office on 01344 875 000 or email info@kirkrice.co.uk
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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
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