Self-invested personal pension (SIPP)

The SIPP is a type of personal pension you can save into through your workplace or privately. If you like plenty of personal choice in the ways you invest your pension money then the SIPP will be right up your street. There’s generally more options available than you might find with a personal pension or company pension scheme.

Self-invested personal pension principles

You contribute into the pension yourself, and subject to certain rules the government puts some money in as well (tax relief). Your employer could also pay in if they wish to.

The amount of money you get to enjoy from your pension in the future depends on the amounts you have paid in, how well your scheme performs, and how much you have been charged in the meantime.

You own this pension yourself, which means there’s great flexibility available when you decide to take your money out in later life, including being able to gift it all to someone else when you die.

The investment risk is yours and your pension may not grow by as much as you expect. It is even possible to get back less than you put in, as with any investment.

How is a SIPP different to other pensions?

Choice is a good thing, right? The SIPP gives you more choice than you can shake a stick at. There are several different types of investment, alongside the normal range of funds that you might find with a personal pension. Being comfortable with making your own investment decisions is pretty important if you use a SIPP.

Amongst the investment options you could include with your SIPP are:

• Funds which are made of up hundreds, evens thousands of different types of investment in the UK and overseas.
• Company stocks and shares, which could be for a single company or several different ones.
• Commercial property and land (but not residential property) which commonly includes offices, company premises and property funds.
• A SIPP can be used to borrow money, perhaps to raise a mortgage on a property. This is a popular option with company owners who might buy the building they use to run their business.

All that choice would be really something to think about, but it can come at a price. The SIPP providers and advisers often have higher charges than you might see with a personal pension due to the specialised nature of the SIPP investments. And, for the majority that is generally a step too far.

Is a SIPP right for me?

Now, there’s a question and it’s tricky. You should only consider a SIPP if you have some experience of investing and are comfortable with making your own decisions, possibly with the help of a financial adviser. If you can’t tick that box, then it’s probably best to choose a personal pension. If you do so, then you’re in great company as the overwhelming majority of people find more than enough great choice of where to invest the money they save into their pension.