Planning for your future makes saving for a pension essential. But there are many ways to build and use those savings, and the approach that works for other people may not be the one that is most suitable for you.
You need a pension strategy based on your needs.
One of the less common โ but potentially very effective - strategies is a SIPP.
What exactly is a SIPP?
With the simplest pension types, your money will be pooled with that of other scheme members, and all the decisions about how the massed wealth will be invested and controlled will be made by an expert fund manager. He or she will aim for a combination of growth and security based on their market knowledge. You can let them get on with their job.
You can also find pension providers that help you choose how your contributions are invested in from a shortlist. You might choose to invest cautiously or be interested in a particular sector.
And there are SIPPs, or Self-Invested Personal Pensions. They are a type of pension that let you access a much wider range of investments and leaves the decision on how your money is invested up to you.
How does a SIPP work?
A SIPP provides all the usual tax-efficient advantages of a pension, but with the freedom to invest the funds across a huge range of different investments that you select. Shares, unit trusts, investment trusts, gilts and corporate bonds, exchange-traded funds and even commercial property can all be investments in a SIPP.
Think of a SIPP as a do-it-yourself pension investment. You'll have to take responsibility for selecting and managing your own assets, although many SIPP providers can offer help and support, and some even provide ready-made portfolios for your investment.ย ย
Providers who offer advice on which investments to hold tend to make higher charges for the extra expertise and services they provide.
There are two main types. Full SIPPs are aimed at experienced investors who require a sophisticated approach, with opportunities such as investing in commercial property. DIY SIPPs tend to be provided by investment platforms - which restricts the available investments to choose from - and are more suitable for people with smaller pension savings.
What can SIPPs invest in?
SIPPs allow you to invest in a wide variety of assets. These could include:
- Stocks and shares
- Investment trusts
- Unit trusts
- Open ended investment companies (Oeics)
- Gilts and bonds
- Exchange traded funds (ETFs) traded on the London Stock Exchange or other European markets
- Bank deposit accounts including non-Sterling accounts
- Commercial property
- Real estate investment trusts listed on any stock exchange
- Offshore funds
Whatever sectors interest you, a SIPP could make it a tax efficient way to invest in it.
So, is a SIPP the most appropriate pension strategy for you?
A SIPP could potentially be a good strategy for you if you are an experienced investor, with time and knowledge to monitor your investments, however, it may not be appropriate for inexperienced investors.
SIPPs are often seen as a good option for people who want to gather all of their pensions into one pot before they retire.
There are many providers, with different charging structures that can make comparisons difficult. You may be charged a fixed annual administration fee or an annual platform fee, as a percentage of the amount youโve invested. Some companies charge both.
There are also different levels of choice. Some SIPPs restrict the investments they offer access to. Others offer greater freedom.
Ensuring that you get the SIPP that is appropriate for you and avoiding the pitfalls means that getting professional advice is essential. To get it, simply call us at Continuum.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment or retirement strategy, you should seek independent financial advice before embarking on any course of action
The Financial Conduct Authority does not regulate taxation advice.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits areย taken. Pension savings are at risk of being eroded by inflation
The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future
