Thinking of a SIPP?Written on September 4, 2014 by Kirk Rice LLP
Financial Services QuestionsThe Question:
I need to start a Pension and a friend suggested a SIPP as that is what they have but they could not tell me why. Could you explain the benefits of a SIPP over other Pensions?
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%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 such as Invesco Perpetual and M&G. Greater Fund choice means you may be able to access Funds that historically (no guide or guarantee of future performance) have performed better than those available via a Stakeholder Pension.
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 2000 Investment Funds and you can invest in Individual Company Shares such as Vodaphone & BP for example. You can also invest in/buy Commercial Property and other Investments such as Structured Products.
The main advantage of the SIPP is therefore the greater investment choice which will appeal to some and especially those who prefer a more hands on approach to investing. However, I often come across people who have a SIPP but invested in Funds they could have accessed using a Personal or possibly a Stakeholder Pension for a 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.
If you would like more advice regarding this issue or any other financial services matter, please contact us.
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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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