Self-Invested Personal Pensions (SIPPs)

A SIPP is just a wrapper that contains your own investments, chosen by you, that are to eventually provide you with a pension

SIPPs used to be expensive. Now they are not. You just buy the SIPP wrapper and stick your own investments in it (subject to the Pensions Act rules). You also avoid IFA commissions (which is why IFAs prefer to sell you pension plans). Perfectly simple.

Not only are investments within the SIPP free of tax but your contributions to your SIPP are also tax deductible against your income (subject to complex limit rules that your adviser should explain).

But SIPPS have some pitfalls

SIPPS have been around for some time, but primarily as wrappers for the rich (those who could afford tailored pension arrangements instead of buying a plan off the shelf). Only recently have they begun to enter the mainstream - driven partly by competition, partly by regulatory changes, but mainly by the decline in employer-sponsored pension plans. This history explains some of the following:

  • Set up charges can be high. It's possible to pay £1,000 + VAT. It's also possible to pay less than £100
  • You cannot always invest in the full range of assets allowed by the pension regulations.
  • Some SIPPS do not in fact allow you to manage your investments directly. You get (and pay for) a manager.

What now?

The very flexibility of SIPPs makes it difficult to chose one - there are many variations. If you just want share dealing the discount brokers are likely to be your best shot. If your preferred provider wants you to make a long term commitment to his services look very carefully at things like reputation, track-record and evidence of administrative competence.